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Must Read: Triple-A Failure

Do-not-walk-run to read Roger Lowenstein's piece coming out in this Sunday's NYT Magazine about the rating agencies, titled, Triple-A Failure.

There is so much good stuff here, almost any random paragraph is worth quoting:

"Mortgage volume surged; in 2006, it topped $2.5 trillion. Also, many more mortgages were issued to risky subprime borrowers. Almost all of those subprime loans ended up in securitized pools; indeed, the reason banks were willing to issue so many risky loans is that they could fob them off on Wall Street.

But who was evaluating these securities? Who was passing judgment on the quality of the mortgages, on the equity behind them and on myriad other investment considerations? Certainly not the investors. They relied on a credit rating.

Thus the agencies became the de facto watchdog over the mortgage industry. In a practical sense, it was Moody’s and Standard & Poor’s that set the credit standards that determined which loans Wall Street could repackage and, ultimately, which borrowers would qualify. Effectively, they did the job that was expected of banks and government regulators. And today, they are a central culprit in the mortgage bust, in which the total loss has been projected at $250 billion and possibly much more."

Go.

>

Hat tip Paul.

Source:
Triple-A Failure
Roger Lowenstein
NYT, April 27, 2008
http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html

This article will appear in Sunday's New York Times Magazine.

Wednesday, April 23, 2008 | 03:00 PM | Permalink | Comments (18) | TrackBack (0)
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Quote of the Day:

The chief executive of Bank of America Corp. (BAC) says the $4 billion acquisition of troubled Countrywide Financial (CFC) "still looks like a good idea".

I bet.....

Ciao
MS

Posted by: michael schumacher | Apr 23, 2008 3:19:21 PM