The Subprime Mortgage Crisis Devastated From The Global Financial Market

1032 Words Sep 19th, 2014 5 Pages
Writing Assignment #2
Financial Market
Yuxue Zhang

The 2008 subprime mortgage crisis devastated from the global financial market. People believed that the “Big Three” credit rating agencies played a significant role at various stages in the crisis. The Reuters, in an article published in 2011, even claimed that credit rating agencies triggered the financial crisis. The Reuters believed that Moody’s Corp and Standard and Poor triggered the worst financial crisis in decades by downgrading the rating on complex mortgages securities triggered the worst financial crisis in decades. However, the problems of rating agencies have existed for quite a long time and accelerated the crash down in some extend. In my opinion, despite the
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At first, the investors did make a lot of money in subprime investments, and greedily they began invested more and more, until the market saturated. When the analysts in credit rating agencies eventually realized the bubble of the subprime market and they began to downgrade large amounts of mortgage securities, it was too late. As the investors saw the decline of subprime market and an abrupt downgrading of mortgage securities, they panicked and it caused the market to crash. The rating from credit rating agencies accelerated the flourish of subprime mortgage market at the beginning, and eventually facilitated to the financial crisis. In the year 2007, Moody downgraded over 5,000 mortgage securities. The downgraded mortgage-backed securities were totaled to $1.9 trillion; some securities that had carried an AAA rating were downgraded to CCC. What on earth caused the inflated rating of those subprime securities? In order to measure the capital of broker-dealers, the Securities and Exchange Commission issued a policy to penalize brokers for holding securities that were less than investment-grade (Moody’s top 10 grades), and outsourced its regulatory function to the “Big Three” credit rating agencies. Followed by similar regulation rules in other security markets, many classes of investors were forbidden to buy those noninvestment-grade securities. While security
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