Big Problems Are a Series of Failures
This is a very interesting story in Wired. http://www.wired.com/techbiz/it/magazine/17-03/wp_quant It focuses on what the author believes was one of the key contributors to all of the purchases of leveraged toxic assets. This isn’t the only reason we are in this position. As with most big failures, it is usually made up of a series of small ones. The information in this story sheds some light into why the rating agencies rated the CDOs as they did, though I don’t know that even this is the entire answer. Some of it also comes down to the fact that the issuers of the CDO’s are the ones who pay to have the ratings in the first place. I do believe there were other things like relaxed lending standards, and probably, most importantly, housing prices reverting to the mean. I hope we learn from our mistakes. Transparency and a accessible exchange should help.