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
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."
Hat tip Paul.
NYT, April 27, 2008
This article will appear in Sunday’s New York Times Magazine.