Poole: Investment pros "shortsighted"

Federal Reserve Bank of St. Louis President William Poole spoke today and MarketWatch filed this report on the tongue-lashing administered to investors who should have known better (hat tip BL).

Investment professionals' "shortsightedness" led them to make fundamental errors that led to the mortgage crisis and credit meltdown, St. Louis Federal Reserve President William Poole said Wednesday.

In a speech to financial planners, Poole detailed five key mistakes that borrowers and lenders made that have pushed the economy to the brink of recession.
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Poole's list of five key mistakes:

• Borrowers took on mortgages they could not afford.
  
  
• Mortgage brokers put too many people in unsuitable mortgages. They knew, for instance, that adjustable-rate mortgages probably wouldn't be right for many borrowers if interest rates rose as the market expected.
  
  
• Investment banks jeopardized their reputations by securitizing mortgages without doing due diligence on the underlying assets, many of which were based on "inadequate or spurious information."
  
  
• Rating agencies put their stamp of approval on securitized mortgages without considering whether AAA ratings could be maintained if house prices fell.
  
  
• Investors scooped up those securities without doing adequate analysis first. "Investors too readily accepted the AAA ratings at face value," Poole said. "A reach for yield with inadequate attention to risk in another basic lesson that apparently cannot be relearned often enough.
  

"There are no new lessons here," he said. "The mistakes that brought us to this point have been made before."

Each and every borrow, lender, investor, and rating agency should have fought back their animalistic urges and, thinking like an economist would think, have only used negative real interest rates and a financial environment completely devoid of regulation to do good things that would benefit the economy, as well as mankind in general, over the long-term.