Bongwater.

Credit ratings make no difference to derivatives because the event that makes them risky is always external to the specific loans, e.g. interest rates drop so everyone refinances out and your payment stream dries up. The entities that were allowed to buy shares in mortgage pools were the size of Royal Bank of Scotland, Deutsche Bank and Credit Suisse. International investment bankers know damned well what derivatives are and why they’re risky, which is why they also bought credit default swaps and mortgage insurance. The credit ratings set the per-share buy-in price but not the risk and everyone involved knows it. Lowering the credit ratings would have lowered the buy-in price but would not have affected the risk or the willingness to purchase.

Doug, you discount the Community Reinvestment Act as a cause but then cite no-doc loans as a problem. Yes, and why were they developed? To justify giving loans to people who couldn’t otherwise qualify for them (immigrants and minorities) to increase lending to bad risk borrowers, to meet CRA requirements, which Congress set. Again, lowering credit ratings wouldn’t have stopped Congress from passing idiotic social-leveling legislation. In fact, Jamie Gorlick at Fannie Mae lowered underwriting standards specifically to be able to guarantee more bad risk loans.

Finger pointing isn’t problem solving. “It’s complex” and “I don’t know” don’t solve problems. Tinkering with credit ratings won’t solve the problem, either.

I hope that British incarcerated criminals share some traits with ours …

A million dollar one-time donation by the reptile Bloomberg is nice. A million dollars received in donations from a million different supporters is much nicer. I think those figures would verify Mr. Fisch’s statement.

Wall Street firms were able to hide the risk by complicating it and by getting the rating agencies notably, Moody’s and Standard & Poor’s to give triple-A ratings to bonds that were far lower in quality. Why, were Moody’s and Standard & Poor’s willing to bless 80 percent of a pool of dicey mortgage loans with the same triple-A rating they bestowed on the debts of the U.S. Treasury? Because, Wall Street firms knew how to game the system; they knew how to get the rating agencies (which were eager to collect big fees for their services) to ineptly rate dangerous bonds. Most evaluation models, were based on rising house prices and used the foreshortened, statistically meaningless past to predict the future; this was how the entire food chain of intermediaries in the subprime mortgage machine was able to dupe itself.

All while their competition is coking coal and using premium taconite.

And it’s part of a university study.

Five will get you ten DOE loans and subsidies are involved. This one doesn’t pass the smell test for business plan.