Dhanabalan: Bubble in bets on events

Dear Mr Tan
In today's straits times, Dhanabalan said "the financial crisis is not the result of bankers making ill-judged loans to the real economy; it is the result of a bubble in bets on events in the real economy"


I do not know why he used the unusual word "ill-judged loans" but i believe he is talking about the subprime loans existing prior to the crisis of 2009. According to many internet articles I have read, and also a YouTube video explaining the Financial Crisis, the crisis was caused by sub-prime loans which are chopped and repackaged to CDOs etc. to spread the risks to the unwary investors. As a layman, I can understand this.


But Dhanabalan said it was nothing to do with these. He said the Financial Crisis was due to "a bubble in bets on events in the real economy". The Straits Times writer also added that it was a bubble "formed from bets on how events in the economy would pan out". I have absolutely no idea what Dhanabaln or the writer is saying about "bubble in bets on events".


REX


REPLY
This is how I interpret Mr. Dhanabalan's views. By real economy, he meant lending to companies to manufacture products, distribute goods, employ people. By taking bets, he meant that they were speculating on the asset prices through sub-prime, collateralized debt obligations (CDOs), credit default sways (CDS), and other derivatives.

If the housing prices continue to go up, they all win their bets. When the housing prices fall, the financial system collapse.