If it's any comfort, the smartest guys in the room don't understand risk either

Great post in The Capital Spectator, which I found by way of the WSJ's MarketBeat about the current wooliness in the CDO market, and the underlying subtext, which is ultimately "What the hell were they thinking?"

The Capital Spectator: ANOTHER LESSON IN RISK

Turning assets into securities is nothing new, of course. From credit card debt to commodities, the boom in securitization has been percolating in the financial industry for 20 years. Arguably the difference this time around is that the underlying asset was thought to be impervious to the bears.
It's understandable how someone might think so. Looking at year-over-year prices for housing on a national basis, for instance, shows no losses for decades. Indeed, you have to go back to the 1960s to find red ink by this standard, and even then the dip was slight and brief. If we stop there, housing as an asset class exhibits the stuff of legend: enduring and virtually uninterrupted gain.
There's just one problem with that conviction: it's wrong.

For those of you just tuning in, I'll draw your attention to a post I made last spring about where people go wrong when they think about things like risk vs. return. To recap: risk doesn't go away, no matter how much wishful thinking you do.

**The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements and definetely contains sarcasm and rude sentiments. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? If you came here because you were trolling Google looking for someone to help you get rich in only twenty minutes a month, you need to seriously re-evaluate your worldview. This blog is intended solely for the entertainment of the reader, and the author, and not neccessarily in that order.

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