Crime Against Humanity: the Holy GAAP, 31

And then third party investors follow suit with their growing demand for more assets and artificially high yields. It's not just that opportunity makes the thief, it's rather that contagion takes the form of severing the communication lines between the investor and the producer, and of a permeating, continuous, undetected and unopposed but rather greeted with open arms, blinding miseducation that the highest purpose in life is getting out exchange, plundering for an immediate short−sighted loot the vital lymph without which the investment is doomed. It’s not that the banker has much at heart his borrowers’ survival, not more than he has at heart seizing them; it’s that the vital care for the investment is even more cut off with such non−bank financial entities, even more stranger to the underlying borrower.

A quintessential link in the chain of transmission from the off−balance sheet to the financial bubble is called securitisation. When you see meatballs on the menu of a poor restaurant, you wonder what their ingredients once were, before being securitised into those meatballs. You know how it goes, when the cook is not your loving grandma: anything gets hashed together and, who knows… The richer and spicier the mixture, the less perceivable the rotten scraps that ended up inside it.
The securitisation recipe is quite simple: You need to set up a mixing bowl called SIV, Structured Investment Vehicle, but also SPV, Special−Purpose Vehicle, or SPE, Special−Purpose Entity. You sell it your wildly assorted loans – pardon, you put all your diverse ingredients in it, and mix them thoroughly until you obtain a smooth, homogeneous, undiscernible mixture. (They call this “granularity”, meaning “risk spreading”: the concept originates in the province of common sense, where it means minimizing altruistically the destructive potential of unavoidable risks inherent to constructive goals; in the province of securitisation, though, it means minimizing selfishly the destructive potential of deliberately pursued risks inherent to destructive goals.) Your SIV, SPV, SPE, then, resells your loans so “securitised” to third party investors – pardon again, you shape the mixture into loads of small balls, all the same, and fry them until they are crisp, golden and yummy. (They call this “repackaging”, but in doing so they take some poetic license: actually, they do not just put the same junk in a new box; they blend the junk before putting it in the new box.)

Crime Against Humanity: the Holy GAAP