When you think about how big a chunk of the $4 trillion mortgage market that Fannie and Freddie control, I think your B school professor was indeed prescient as regards the level of risk they represent.
I talked to a former colleague of mine who has eliminated all of his positions in the stock market and has backed away from bonds as well. When I asked him if it had anything to do with how overpriced the NYSE is (from a P/E ratio vantage), he said no. Rather, it was the potential risk posed by the same lack of accounting controls you mentioned above. He felt, and I agree, that the nonsense surrounding the Arthur Andersen/Enron debacle, and Tyco, Global Crossings, etc, was not eliminated by Sarbanes-Oxley, nor even contained, but still out there and as bad as ever.
I think about the NASDAQ/dotcom bust, and how little we seemed to have learned following. The same mistakes and the same warning signs are all there, and we are ignoring them just the same.
I guess Polybius did have it right: “Those who fail to learn from the lessons of History are doomed to repeat them”.
