I think the point the author was trying to make with "counterfeiting" wrt the subprime crisis is like this: counterfeit goods offer superficial similarity to the real thing, but are made of inferior materials when you unpack them.

During the GFC, toxic mortgages were bundled in with mortgages with a high probability of repayment. Since the debt rating agencies gave those mortgage backed securities a AAA rating without doing quality assurance, they entered the market on the same footing as legitimate AAA-rated debt.

That’s not really what happened. It’s not that AAA rated MBS packages were secretly full of shit that should have brought down the whole rating. It was that the systemic feedback of over leverage wasn’t really taken into account.

The AAA’s wouldn’t have failed if it weren’t for the cascading effect of ARMs blowing out shit mortgages causing the financial system to get caught with its pants down.

In other words, the AAA criterion based on historical data would have been applied to the vast majority of each of the individual mortgages as well because they wouldn’t have been problematic assuming housing prices didn’t contract more than they ever had.

There’s a reason it’s called the subprime crisis.

I take your point, though counterfeit goods aren't necessarily made of substandard materials. There are plenty of ways to skimp and then take advantage of the brand's existing reputation beyond shoddy crafting.

I was thinking 'counterfeit' in terms of things like baby formula and plastic rice, which cause severe consequences when co-mingled with regular inventory. I believe that's the scenario the author was referring to. For things like knockoff handbags, the materials used are largely the same and the price premium is heavily dependent on brand itself and not the cost of production and regulatory compliance.

> The subprime mortgage crisis is basically godwin's law for finance.

This is so spot on - I'm 100% going to steal this.

That’s because it’s such a massive example of a systematic corporate private capital failure that was bailed out by equally massive public power while regular people were left on the hook.

No other industry has gotten that kind of bailout that far into supposed maturity.

Huh. Many sectors are "strategically important" and are constantly subsidized. Farming. Everywhere in the world. Automotive industry. Fossil related industries (oil subsidies).

https://www.thebalance.com/government-subsidies-definition-f...

I think that is only because of the relative age of sectors given the sheer number of times airlines got bailed out.

I don't think the magnitude is remotely close, but perhaps I'm off here? What airline bailouts are you thinking of?

The multibillion post 9/11 ones for one both post attack and Iraq wars and SARs related travel reductions. If you count uniquely privileged bankruptcies and other activities there is a whole lot of the 20th century to include.

I get your point, but Ponzi would be an even better candidate, though.

People usually know what Ponzi is about so comparing unrelated things to it is going to be obviously wrong. But most people have very murky idea beyond "something in capitalism went bad" when talking about the subprime crisis, so any time anybody wants to criticize anything going bad in capitalism, they are free to grab this example with low(er) risk of being called out.

I was thinking of a Godwin equivalent for finance, which is narrower than capitalism as a whole.

What I had in mind is that once you take several rounds of investments (especially from private individuals) and are not profitable, bad faith critics may try to picture you as some kind of Ponzi scheme (trying to repay early investors with late ones, etc.)

Well, the trick of Ponzi scheme is that it looks externally exactly like legit financial company - you get investments, you pay dividends, you attract more investments to finance growth - this is how many legit companies work. Without looking inside - whether or not the company has legit activity going on on the inside, whether currently profitable or not - it's impossible to know, externally it looks the same.