> SA writes:
>
>> they all understood that CDOs would not pay off if
>> national house prices fell.
>
> I think this is way less nuanced than I'd put it. I don't believe
> that anyone involved in purchasing these securities viewed it as a
> macro play on national housing, with an up=win/down=lose payoff.
I agree. It was like investing in Treasuries. The thought there is: "This is a safe investment -- unless of course the govt default, but obviously that'll never happen." Likewise, with the CDOs the thought was: "This is a safe investment -- unless of course national house prices fall, but obviously that'll never happen."
SA