By now it's old news that some of the big financial players misunderestimated the risk involved with buying a lot of sub-prime mortgages.
And, sure, we can second-guess after the fact --but if we had been there at the time who's to say we wouldn't have been buying up the crappy mortgages like hot-cakes ourselves. I know I do love me some hot-cakes.
Besides the occasional hankering for some hot-off-the-grittle whole-wheat pancakes, my only other claim to a bit of expertise in the matter is having failed the actuarial exam four times.
As Larry David would say:
Pretty, pretty good.
You'd be hard-pressed to find anybody who has topped that little bit of shameless perseverance. Way to go, me.
It has been a little while, but I was thinking about it and I do remember that theorem where the sum of the standard deviations is greater than the standard deviation of the sum. --Allegedly standard deviation measures risk, so the idea is that if you pool all the risk it's less risky.
That's the idea anyway.