US house prices have collapsed, making mortgage loan portfolios somewhere between impossible to value and valueless. As a result, the investment banks have been devastated. Lehman Brothers has just gone bust, and Merrill Lynch has just been sold at a knockdown price. Bear Stearns went under, and UBS took a massive write-down on its investment banking business.
Meanwhile, the number of failed US local banks, wiping out small savers and shareholders, has remained low. While this might partly be tip-of-iceberg effects, it’d be frankly bizarre if part of the reason wasn’t that many of the riskiest loans ended up owned by Wall Street.
In other words, the system transferred risk from people who weren’t well placed to bear it, to Big Swinging Dicks and Masters Of The Universe, who duly lost their jobs, second Jaguars, third homes, etc, when things went horribly wrong.