Sub-Prime Mortgages Quotes
Moody’s and Standard & Poors, the 2 largest credit rating agencies, gave A ratings to securities that had packaged terrible F-rated, toxic, subprime mortgages, and gotten the credit ratings agencies to rate them as A on the theory that the risk was diversified. Each new security like this that a bank put out was submitted informally to one of the credit rating agencies to “discuss”. If the agency “concluded” that they could give it an A rating, they received a very large fee. If not, the bank would not officially submit the security and not pay anything. That almost never happened with these packages of subprime mortgages.
This quotation is classic as it digested the major reasons for the worst financial crises since the Great Depression into one paragraph that captured the essence of the problem. The great dispute has been ever since, who let this happen, who was supposed to stop it from happening, and who did what to correct the problem afterwards so that it would not happen again? In this situation, the Wall Street Houses had paid securities rating firms to give these bonds an AAA rating even though they were backed by very risky mortgages none of which had AAA ratings.
"Market mispricing" is an economic euphanism for the bankers and major investors of the nation (and abroad) bidding up the prices of the assets in order to continue to squeeze large profits even after they knew that the assets had been far overpriced. Few wanted to stop playing hoping the music would not stop in the economic game of musical chairs. When it did, there were not enough "seats" and failures casued other failures and the contagion spread.
