Understanding Reasons For Subprime Mess "Like Figuring Out A Card Trick"

A column in today's New York Times says this about understanding how we arrived at the current subprime mortgage mess:

• Understanding how subprime mortgages led to the current market meltdown is a bit like figuring out a card trick. Lenders and financial wizards took the joker — the risk that certain borrowers might default — and hid it in the deck. They shuffled all those risky subprime mortgages into much bigger investment pools, then cut the deck twice, fanned the cards and presto, it disappeared. Magic.

• But then borrowers were shown the sleight of hand. Of course, the joker was always there, and the risks were real. Now people are defaulting on loans, and investors are spooked, prompting the Federal Reserve late last week to act by cutting the rate it charges banks on loans, which buoyed the stock market Friday.

For the entire column, see Wall Street Quake - The Unforgivingness of Forgetfulness.