All of which sounds peachy, except that underwriters are incapable of holding the securities they create if they're to pursue their normal function. They don't have the capital. In the traditional market, they don't sell because they believe the value will fall. It's not how they represent their product, nor is that the understanding of the buyer. They sell to free up their own capital to create more securities. They depend on flow.
I have to disagree here because the banks that failed or were pushed to the precipice during F08 were precisely those banks that held onto the super-senior trances of the CDOs they were selling to investors. They held onto to these classes of notes because there was no market for them because of their extremely low yield. When the value of these assets declined when the housing bubble popped, the banks lost a large source of the collateral they used to prop up their borrowing in the repo market. As the repo market was vital to the banks' daily funding, the removal of that source of funding sounded the death knell for the banks.
The relationship between securitizer and purchaser is simply not as you describe, nor should it ever be. If it were, no MBS would ever be sold. Investors realize that securitizers have a higher level of information, depend on their integrity, that of the ratings agencies, and also the regulatory systems involved.
Again, I don't disagree but I believe you are misrepresenting my position. Of course investors will rely on regs and ratings agencies to ensure the integrity of the product (as well as independent portfolio selectors). If you think, however, they investors don't personally evaluate the quality of the pool of assets that underlie the notes they are purchasing then you're sugesting that the investors, in effect, are purchasing sight unseen.
When investors realized none of that was the case, they quit buying, and the system locked up. Because of the extremely complex nature of the instruments involved, it became impossible to evaluate the value of existing MBS, and their market price plunged.
I agree again; as the market price for securitized products plunged the troubled banks were those had been stockpiling this debt or had it pushed back onto their balance sheet from SIVs or SPVs. This left many banks facing huge unfunded liabilities. More importantly, however, the decline in the market prices shut the banks out of the repo market because counter-parties in repo transactions now demanded huge haricuts because the value of the securities had declined so precipitously.
Which is where all the insurance policies, CDS, were supposed to come into play, except that none of the players had the liquidity to pay up, necessitating the bailout.
Some, such as insurance monolines, were indeed insolvent. Others, such as AIG, simply couldn't meet collateral calls (indeed, because AIG's CDS obligations were related to super-senior notes that didn't actually default, the number of contracts on which they forced to pay was a tiny fraction of the overall notational they extended).
The rest? Of course you have no desire to respond, because doing so would require a level of obfuscation that even you would find extremely challenging.
Perhaps it would be more prudent if you left prognostication of my internal desires to other parties.
The gross incompetence and malfeasance of the Bush Admin is illustrated by a single chart
I'm not trying to use this as a wind-up, but what how does the chart buttress your claims of 'gross incompetence and malfeasance'? Were Bush administration policies partly responsible for the dramatic surge in home prices -- of course, 100%. Were they the sole cause -- no, full stop. To asset otherwise suggests, to me at least, that the one positing such a view is actuated by 'gross incompetence' or is merely a hack of the highest order.