This very bad action was due to the distributors of loans banks and MFIs

The heart of the financial crisis can be summarized in a gigantic operation of Alchemy who helped transform, 2005 and at height of several hundreds of billions of dollars, lead, in this case lending to perfectly insolvent clients, in gold, financial investments practice remunerative and benefiting from the best note of credit rating agencies. In 2007 and 2008, gold becomes very brutally lead, the biggest misfortune of its purchasers.

The New York Attorney, Joseph Cuomo, has launched a survey of investment banks and rating agencies, with aims to determine if it was to experience chemistry gone awry or scammed on a large scale.

That has happened There are 20 years developed new financial techniques, securitization and structuring, to propose to the investors of securities portfolios of hundreds or thousands of loans (or obligations). The challenge for investors, to appreciate the risk of these titles would have sentenced these techniques to remain confidential, without the intervention of the rating agencies.

To do this, they themselves are not supported as as usual on the judgment of their rating Committee, but on mathematical models simulating the behavior of the thousands of individual loans in assumptions of stress. In practice, stress taken as reference was the level of highest failure encountered in the past for the same type of loans over a safety margin. Based on these calculations, the agencies attributed notes to these complex securities using the same scale of notation than they used to note States or large companies.

The crisis of American companies of the year 2003 confirmed, to some extent, the validity of these models: despite failure rates of record for companies, securities in the portfolio of loans or bonds behaved as expected. In particular, securities rated AAA and AA spent without any problem through the crisis, which did only increase the confidence of the agencies in their own models, and the confidence of investors in the rating agencies.

From 2004 and 2005, the interest of investors ran into portfolios of real estate loans, securities and loans particularly to customers whose credit was not excellent, the famous "sub-prime mortgage" loans It is in no case of insolvent clients and the level of unpaid, was significantly higher than that of the "prime" loans did not exceed a few percent. The Government also encouraged this type of loans to enable to more Americans become homeowners.

It was then that the machine is packed: AAA rated securities made from the high margins of "subprime" loans offered earnings significantly higher than the securities issued by States or companies (very few) recorded at the AAA level.

Quite rapidly, the demand exceeded supply and there were only two ways to increase the production of AAA titles:

-invent new products and the creativity of investment banks made Marvel: securities both real estate loans and loans to firms or even slices recycling non-AAA first securitization, through a second securitisation from them, and a few other ingredients, which allowed for new slices AAA increasing raw material and therefore strongly stimulate demand!

Occurred when the more massive fraud of modern times, with loans to millions of Americans perfectly insolvent and also not asking anything. This very bad action was due to the distributors of loans, banks and MFIs.

Of course, the characteristics of these borrowers (there are criteria for 'subprime' borrowers, who are "at risk" but not insolvent borrowers), did nothing to references from the past who had served to "calibrate" the models of the rating agencies. In early 2007, the outstanding of these loan "subprime" and even "premiums" loan portfolios flew at levels several times higher than the worst references from the past, agencies were forced to massively revise ratings that they had allocated some time previously and the values of these titles crumbled.

The investigation came to launch the American authorities should know whether or not the investment banks and rating agencies were aware of the fact that distributors of home loans massively wrong them on the quality of the portfolios of loans they engaged them. Gold-plated lead!