part 2
     In response to question #1, "What potential long term problems could you imagine coming as a result of this financial vehicle." i.e. mortgage-backed securities.
         I don't really see a problem with the idea of the mortgage backed securities or would I have imagined any potential long term problems had I been in the business 30 years ago and helped develop them.  The stock market has always had financial products exactly like this for many years, even going back to the beginings of stock markets in Europe hundreds of years ago.  The problem that caused the collapse and crises was that people and financial institutions were investing in these funds thinking that they were safe because they were essentially backed by the U.S. government.  This would have been fine had the executives not allowed for the sub-prime boom.  Far too many people were given loans that everyone knew they were not qualified to get. However, the investors did not know this was happening or they would have re-assessed the risk involved with these funds.  One reason the housing market got out of hand was because of the massive investment and speculation during the 1990's.  I remember reading many books in the latter part of the decade proclaiming how I could become a millionaire with virtually no investment money or risk, simply by buying houses with no money down and flipping them.  I was hooked and read endlessly about financial advice, housing and stock markets, and many of the endless amount of get rich quick books around at the time.  I still have some of them and occassionaly laugh at how ridiculous the advice and strategies were, almost all of them are obsolete in their advice.  That time period is over, however, people will find other means of get rich quick schemes legal or not.  However, the basic premise of the mortgage backed securities are fine with me.  Retirement accounts, 401 K's, and many government programs are set up in similar fashion.  The importance in safety comes in diversification and the people who suffered the most in this crises were the individuals who ended up with foreclosed homes because they feel victim to predatory lenders or lost their jobs because of downsizing from the fallout.  The major investment firms were diversified and the top executives left with millions of dollars.  As usual, it was the little guy who got the shaft. Hopefully people will realize that they are ultimately responsible for the choices they make, and need to realistically judge their ability to repay a loan.