In yesterdays NY Times magazine there was a terrific article on how the rating agencies participated in the current housing bubble and liquidity crisis.
Although we know (and discussed here) many of the players in our current situation, this is a well written piece on how financal structures are created and utilized.
I have been saying for a long time that the ratings agencies were the key to the meltdown. If the paper had been rated correctly, we wouldn’t have this mess on our hands. I agree completely. Everyone was to blame — borrowers, lenders, mortgage brokers — you name it. But the ratings agencies were the key.
Roger Lowenstein’s articles really carry a lot of weight. I read his last one on Ben Bernanke, and it made it so plain the difference between a textbook view and a practical approach to economics.
This one about mortgage backed securities is as good also. Explains very clearly how the mortgages are bundled and end up on Wall Street. Only thing is, there’s not much point to it now, except maybe to make sure it doesn’t happen again.
Great article, shedding light on one of the largest contributors to the mess that we now face. As a mortgage industry insider that specialized in due diligence, I often asked the rating agencies and the investors alike why they don’t “crack the tape” and review the loan files at a more granular level. The most common response was “we are not loan officers”. The fact is that these folks are equally culpable – while the LO’s created a mess, it would not have been possible without AAA-ratings and the securitization from the investors.
What annoys me most of all is that they have not learned from their mistakes….sure the lender is more diligent today but there has been no change to the oversight amongst the rating agencies and investors. Before a portfolio can be properly securitized it would be in the best interest of all to understand the make-up of the collateral and the credibility of the loan pool.
Good article … the due diligence performed all along the origination trail is lacking, from the processor to the securitiser, I have seen wall street firms buying tens of millions in loan portfolio and actually looking at only 15% -20% of the files. It’s no wonder that so many of the rating do not match the product.
It is a dangerous game right now.
did you see what the new girl Jana did at TransUnion’s office?
the stir she caused