Property Houses May be the Next Big Crash; and it'll have a much bigger impact on the global and personal economy

[LegendKiller]

If you read the article. The formula actually works. What happened was how securitization was done. You could take a crap security, rated C, and securitize it a second time with the cream of the crop from that group and rate it AAA. Which is fraud.

Bankers and other bondsellers were doing this shit 5 and 6 securities deep. No one could assess the risk. Yet they used the formula to sell it... The variables did not even come close to representing reality.

CDOs, by themselves, aren't a horrible idea and worked for a long time. The idea being that correlation among different securities is low and goes lower as the number of securities increase, just simple MPT. However, when all of the underlying collateral is of the same composition (and shit at that), everything becomes highly correlated.