It seems crazy the way the mortgage meltdown was: “mortgages have always been safe before; therefore, they must be safe now, even though the characteristics which made them safe before have been radically altered.”

Crazy exactly like that.

Wiemar pulled it off successfully because “nobody” was expecting a modern civilized nation to inflate its currency to nothing, just as “nobody” was expecting the mortgage meltdown.

http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

It is a source of bafflement to me that people are willing to buy these things. What are they thinking? Under what plausible scenario does the dollar not fall and inflation not pick up dramatically over the next 10 years, let alone 30 years?

There are huge implicit guarantees through FDIC, PBGC, Medicare and Medicaid, AIG, fannie and freddy, government pensions, and various “too big to fail” institutions. Do treasury holders actually believe that these guarantees are gong to be made good via vastly higher taxes? Via an endless stream of greater fools to buy treasury debt? Even if only a minority of this debt is inflated away, returns on long-term treasuries are going to be negative in real terms.

It seems crazy the way the mortgage meltdown was: “mortgages have always been safe before; therefore, they must be safe now, even though the characteristics which made them safe before have been radically altered.”