Description: The roots of the crisis are understood on a simplified basis, by 3 Ls: a Lack of accountability b Leverage and c Liquidity. Historically, people requiring mortgages sought their mortgages from local institutions that would conduct the evaluation and hold the risk. Loan officers of these institutions were accountable for the outcomes of their decisions – defaults were a direct reflection on their judgment. Leverage was a second key factor. Institutions guaranteed mortgages against default. The third L, liquidity, because a problem. When property values eventually evidenced their inevitable fall, defaults occurred at historically high rates.

Description: Political figures and journalists have tended to blame deregulation and greed for the credit crisis. However, we would like to suggest that these were not the primary cause of the credit crisis. The real cause of the crisis was faulty regulation and arrogance. Flawed regulation in the over-reliance on complicated capital models and arrogance in believing that the complex mathematical formula in risk models overcame the limitations on input availability and enabled companies to capture returns that were greater than the cost of capital, have led Wall Street by creating CDOs and similar instruments to repackage risks and take out the systematic excess risk charges as profits, and have also allowed companies to run “prudently” on leverage ratios that were in hindsight over the limit.

Description: The world of the local S&Ls, the partner-owned investment bank and Bretton Woods isn’t coming back. So what does that leave us to do next? Part of me is persuaded by the second law of thermodynamics, which says that existence gets progressively more and more disordered with the passage of time, since any work done to address the current crisis expends more energy and causes more disorder than it fixes.

Description: Many call this the sub-prime crisis, but risky mortgages were simply symptomatic of the underlying excesses building through the financial system. Investors, government, lenders and borrowers were all at fault. Where did the skeptics go?

Description: Interest rates rose from 2004 through 2007, so adjustable mortgage rates increased and many borrowers fell behind. After home prices topped out in 2006, speculators and some buyers who had overstretched found it impossible to refinance. This caused mortgage insurance claims. Insurers may want to study others’ missteps.

Description: In the current financial markets turmoil, it is tempting to ask whether things might have turned out differently. I think the pain in our financial markets would have been less if more actuaries had been involved. 10 reason are offered.

Description: Here we are led to draw a distinction between “wild” markets and “free” markets. A wild market is unregulated and unscrutinized. Information flows are purposely impeded for competitive reasons and reduced to trickles from rumor and espionage. No one knows what anyone else is doing, and pricing is blind and haphazard. In such a market, there are no safeguards against anticompetitive behavior and no guarantees that the market will clear. The only guarantee is that there will be liquidity crises.

Description: The central question is that of viability. Specifically, is the configuration of life insurers’ products and balance sheets economically viable under current accounting and ongoing market conditions?

Description: With the possible exception of full faith and credit debts of the United States, every loan carries some risk with it regardless of the borrower, and this risk varies depending on the creditworthiness of the person or institution that is supposed to repay the debt. Bearing that risk requires some sort of capital, both as a legal requirement and as evidence of good sense in lending, but recently we seem to have forgotten the basic relationship between a loan and the capital associated with it. The lesson of the current debacle is, or certainly ought to be, that the risk inherent in a financial transaction cannot be made to go away by the mere act of repackaging that transaction and renaming it.

Description: This crisis first started with subprime loans and quickly morphed into a credit crisis that eventually engulfed a lot of financial institutions around the world. If a AAA were really a AAA, this crisis would probably have been contained and localized. As the crisis developed, evidence emerged from the shadows that revealed the questionable quality of some AAA-rated MBS or ABS. Subprime loans were the weakest link. As the credit boom came to an end and the economy slowed down further, the Alt-A, prime and credit card loans were also affected. The subprime crisis is only the symptom of a much larger underlying problem. Both consumers and corporations were overleveraged.