Question

What kind of ratings were given on CDOs and MBSs from the Big Three rating agencies?...

  1. What kind of ratings were given on CDOs and MBSs from the Big Three rating agencies? What did these ratings indicate? Were they correct?

  1. What happened to some of the largest United States investment banks during this time?

  1. What happened to bank regulations after the housing fiasco?

  1. What happened to the Stock Market immediately after the housing bust? What about a year later?
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Answer #1

CDOs and MBSs were given triple A ratings even if underlying pool is made of BBB, A- etc. Securitization offered benefits to certain institutional investors that faced regulatory prohibition against investing in, for example less than triple A. These ratings indicates high credit quality and minimum credit risk. No, structured products were given high ratings based on faulty over optimism. Rating agencies made future projections in line with past housing data, which showed generally low delinquency and default rates.

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