Recently, a number of stories have broken that remind me of the old saw about history repeating itself. And while I've found versions of the stories in a number of places, I'm going to provide links to the versions in The Wall Street Journal, mainly because it's convenient and I don't have to start my search anew.
The first story that caught my attention was this one, which talks about the federal government providing $35 billion to the states to promote local housing. That was followed quickly by this blog post about rising delinquencies at Fannie and Freddie.
Now add in two pieces from today's edition. The first is a story (subscriber only at this writing - search for "Wall Street Wizardry Reworks Mortgages") about financial institutions repackaging their bad debt (much of it mortgages) into new financial instruments. The goal is to move the debt out by securing better credit ratings on some of it. And finally, there's this opinion piece about the rating agencies getting a pass in recent legislation.
Separately, the stories may not amount to much. Together, I think they raise the potential to rebuild many of the same institutions that got us here. And those institutions provide incentives. The question for our students: “If people respond to incentives, is it possible that these developments are creating similar incentives to those that existed before the crisis?”
But before you ask it, I offer this last opinion piece as a possible follow-up. It provides a look into an era when incentives aligned with ownership and risk on Wall Street. I think it provides an idea for the future.
I look forward to you thoughts.