My economics degree is only a BA, but I remember studying Black Sholes back in the day.
This kind of bundling into tranches has happened before, and it didn’t work then (one professer said 4-5 times including the S&L bust)...it has huge systemic risk in the arena of the housing bust, and the $40 to 1 that SEC allowed those 6-7 banks to assume. I think that it was a combination of insane Demrat desire to get all poor people into a house they couldn’t afford, and the coming housing bubble bust, along with the greedy Bankers (not just CEO’s or USA bankers) but the real owners of banks that caused a perfect storm to crash our economy. The deriviatives (bets) are part and parcel of those foreign banks (Bildeberger bank owners), and we see that in the billions of CDS’s AIG had to pay off to cover those deriviatives, and which banks got the billions. I believe Sholes died, and Black got the Nobel Prize...or is it the reverse? Anyway CAPM was able to crash capitalism.