Dear Occupy Wall Street: Are You Sure You're in the Right Place?

"Suddenly they saw these mortgage-backed securities yielding 10% and immediately bought them up. They were greedy! But weren’t they just trying to find safe returns for their investors? "

Why did they think a 10% return was safe? Because the credit rating agencies stamped all the bonds AAA. And despite the massive failure of these agencies to do their one job, they're all still in business.

" Financial Accounting Standards Board (FASB) changed GAAP accounting rules so that you could no longer mark a mortgage-backed security according to your own statistical analysis. You had to start marking it down as soon as there were the slightest defaults and the paper started trading at lower values (this is called mark-to-market)."

The banks resisted the change from mark-to-model to mark-to-market as long as possible for one simple reason: Their solvency depended on maintaining the fiction that the sewage on their books had any value. Even Bernanke and Paulson got into the game, trying to convince Congress it was worth buying these bonds up because, someday, there would once again be lemon-soaked paper napkins.

"And what about the banks who bundled together these mortgage-backed securities? I don’t know, you and I asked for those securities through our 401(k) plans. So they were just responding to demand, right?"

They were, but also lying their asses off about what was in those bonds.