So the failure of the toxic bonds was historically necessary and thus unavoidable.
Why? There were lots of people on the other side of the transaction, too. The money paid to the collectors of the CDSes did not come out of thin air, after all.
"There were lots of people on the other side of the transaction, too. "
Absolutely. When you look into the current crisis, you'll notice that it isn't a crisis of "net loss". This crisis is just redistribution of money - for each loser there is a winner. No money or value was "net lost", instead it was redistributed. For each homeowner "B" who bought overpriced house, there is a previous owner "A" who made nice profit which is pretty much equal on average to what mortgage note holders lost when "B" foreclosed.
" The money paid to the collectors of the CDSes did not come out of thin air, after all."
Again, absolutely right. The CDSes were paid by taxpayers - government bailout of AIG and others. So what taxpayers lost, CDS holders won (as they are just better politically connected, surprise!). No net loss again.
In some cases those profiting from the earlier higher priced sale of a property, and the commissions, were committing fraud. One of the story links indicates that Toxie was connected to a known case.
A realtor flipped a property back and forth between friends multiple times, it being sold for a higher price each time. The banks were happy to make the loans on the property that was increasing in value. The people involved shared the gains along the way, then the last one defaulted. The selling back and forth could happen normally... it seems the fraud was in the parties obtaining loans for an owner occupied property. It was apparently empty the whole time.
These people didn't need an economic downturn to default. It was planned.
Why? There were lots of people on the other side of the transaction, too. The money paid to the collectors of the CDSes did not come out of thin air, after all.