I’m studying a subject called Risk Managment for Finance Sector Enterprises at the moment, so of course it mentions the sub-prime crisis and the global financial meltdown. In a couple of places. However, one of the links provided out to supplementary reading material is a great article about people such as Steve Eisman who knew about the disaster well in advance, called The End of Wall Street’s Boom by Michael Lewis. Here’s a particularly scary quote from it:
he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB trancheâthe bonds Eisman had shorted. But Wall Street had used these BBB tranchesâthe worst of the worstâto build yet another tower of bonds: a âparticularly egregiousâ C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA.
Yes, this is how I can justify blogging as studying for the exam this week.