What so many seem to forget, is that loans made to high-risk/subprime borrowers (because the banks weren't hanging on to them)..... were then sold to the financial market as relatively safe investments.
The fact that derivatives/CDO's/subprime mortgage-backed securities (MBS), were invented to try and hide dog chit, by wrapping it in sirloin and then being sold as all sirloin...was the crux of the problem.
Had the major ratings agencies done their job, then high-risk loans would have been properly rated and the market would have dried up...thereby reducing the number of those types of loans given to those who couldn't afford them.
Quote:
The Financial Crisis Inquiry Commission (FCIC)[39] set up by the US Congress and President to investigate the causes of the crisis, and publisher of the Financial Crisis Inquiry Report (FCIR), concluded that the "failures" of the Big Three rating agencies were "essential cogs in the wheel of financial destruction" and "key enablers of the financial meltdown".[40] It went on to say
The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."[40]
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The biggest failure of Obama's administration in my mind, is that not enough of these scumbags went to jail.
CNM