Changes in the Fed's decision-making
Jim Hamilton is concerned that the Fed is changing the way it intervenes in the market and suggests the TALF may generate the false security of securitization that got us where we are now:
But the whole premise behind those Aaa ratings– that securitization could isolate a “safe” component of a pool of fundamentally risky loans– was deeply flawed. It is impossible to diversify away aggregate or systemic risk. All that the device did was to mislead investors into thinking they were protected from those nondiversifiable risks and push those risks onto the taxpayers and the Fed. Before we decide that securitization is the road out of our present difficulties, I would like a detailed and convincing explanation of why the past mistakes are not going to be repeated again.