Nested leveraging is a common theme. Each layer is leveraged and but supposedly protected by another layer's risk management.

Go through enough layers and you eventually hit an insurer that has zero chance of being able to cover all of the losses of everyone. It could be CDS of CDOs of CDOs, or coins being backed by other coins.

Thankfully the average person is less affected by crypto losses than mortgages, or in the case of the depression, stocks.

I am fascinated by the number of layers of abstractions built on top of each other in these financial products... Bankers seem to rival programmers in their ability to stack abstractions on top of each other until it is impossible to understand how the underlying system relates to the top layer.

You could say that MBS/CDOs were 'leaky abstractions', and that there were equivalents to 'code smells' to suggest they weren't the golden debt they masqueraded as. I can't think of other professions that develop the same level of abstractions that programmers and bankers create. Layers and layers of inputs and outputs.

You could also say they were deliberate fraud.

The number of big-name banks whose actions are questionable [1] - if not actually criminal - is astonishing.

[1] As reported by insider papers like the Financial Times.

A structured products desk is basically a microservices team

Actually AIG and other bond insurers really got the bailouts too.

I remember a guy bragging about helping another firm backdate its books to get bail out money. He was bragging. Still remember his name and how he got his pill head daughter a Cush company paid job in London.

Were the risk models assuming no correlation between the risk of the underlying securities?