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Eugine_Nier comments on Mathematicians and the Prevention of Recessions - Less Wrong
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Well, my understanding of what happened is that the mathematicians came up with a model with certain assumptions. The model was applied to model securities even though the assumptions weren't actually true in the real world with people assuming the assumptions were close enough. As it turns out they weren't. This leaves the question of whether it was the mathematicians' job to ensure their models were robust, or someone else's (whose?) job to check the assumptions. In any case, however we assign blame it strikes me that Jonah's proposal would suffer from the same problem.
I must have missed when this became apparent. (BTW, your link seems much more like the coping mechanism low level employees develop when it's clear to them that their situation is absurd and complaining to their superiors won't help than anything resembling knowing fraud.) I don't dispute that there was fraud involved, but the point of the regulators, rating agencies, and the market itself is that they're supposed to catch and/or correct for fraud. Here is where the incompetence comes in.
The dateline on the link is Feb 6, 2013 -- so fairly recently.
I think you're correct -- I posit that the knowing fraud was perpetrated by the superiors, who I think must have ordered the relaxation of rating standards that the employees that were quoted in the link were complaining of.
I believe the sequence of events goes like this: Shadow banks (e.g., Lehmann Bros.) wanted to lay hands on large amounts of AAA-rated securities to use as collateral for the repo that funded their day-to-day activities. That plus the lack of regulation requiring mortgage issuers to hold some proportion of mortgages on their own books (and hence skin in the game) led to slipshod or outright fraudulent mortgage screening and wholesale securitization of the resulting mortgages, inflating the housing bubble.
In detail: since security issuers pay the rating agencies to rate the resulting securities, the three big rating agencies were forced to compete for share of this new market, and one way in which they did so was by relaxing rating standards so that super-senior tranches of crappy MBSes got undeserved AAA ratings and could then be sold to satisfy the shadow banks' demand for AAA-rated securities.
I'm tapping out now.