value of these assets such as mortgage-backed securities falls even further, and eventually the system cracks, which is what Lehman was. It was the final run at the end of a long period of degradation of the financial system. One of the things you highlight in the book is this distinction between idiosyncratic risk and systemic risk. A lot of these financial innovations and financial products were created with the idea of allowing firms to better manage their risk, but in fact, when everyone was doing them, systemic risk went up. What you're describing there, for example, is if a system is leveraged based on the value of assets and the value of those assets begins to decline, the liquidity begins to dry out. That's exactly right. So again, there was a lot of sophistication to financial engineering that went into the creation of mortgage-backed securities and various other more complex derivatives such as CDOs or collateralized debt obligations. The lot of that sophistication, as you (11/44)
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