A collection of random knowledge that I acquire while scouring the internet. There is no rhyme, reason, theme, or order whatsoever. Just some random shit that made its way through a crazy interconnected web of madness and congregated at this slop bucket. Most of what I post won't have citations because I'm a product of a generation that's sick of everyone trying to claim every piece of any idea ever conceived. And we're lazy. If you find your content on here and want to be recognized for it, just let me know.
As long as there is a market for derivatives designed to insure against bad loans, then there will be an incentive for deliberately making bad loans, collecting the transaction fees, and then collecting on that insurance when the default happens.
All the lender, who deliberately makes bad loans, needs to do is make the transaction so complicated and convoluted that the insurance salesmen don’t fully understand the risk they are agreeing to take. Which is perfectly doable in today’s derivative markets.
The only way to ensure that banks try their best to make good loans in good faith is to get rid of that insurance. So that the bank who loans the money is the one who looses the money, if its loan goes bad.