An Unprecedented Era Of Greed And Lack Of Transparency

921 WordsDec 1, 20144 Pages
An unprecedented era of greed and complete lack of transparency led to the economic crash, and housing bubble of 2007 and 2008. I will address the individual home owner later on in this essay, but first I will be addressing the issue of the “CDO”, which most Americans still don’t understand. The “CDO” was used maliciously to make money for the CDO brokers and major CDO creators, investment banks like Lehman Brothers and Morgan Stanley, as well as insurance giants like AIG. A CDO, as I understand it as it is an extremely complicated instrument, is a collection mortgage loans built by the financial industry, particularly the investment banks, to help package loans for credit agencies like Moody’s or Standard and Poor’s to more easily assign it the coveted “triple A rating”. The problem with these CDOs was that they housed hundreds and thousands of loans of varying credit ratings. By throwing in horribly rated B loans with a few triple A loans banks and insurance companies were able to insure and distribute mortgage loans to customers that were not able to normally receive a loan with a triple A credit rating. A triple A credit rating is essentially the rating agency saying “Yes this customer can pay off this loan and will not default or foreclose on their home.” The banks and insurance agencies didn’t have models to predict what would happen if multiple houses defaulted at the same time. All of their numbers and statistics were predicated on housing value going
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