1) On p.45, quoting an e-mail from bond salesman Colin Negrych:
Folks were shocked to find the U.S. government unwilling to throw good money after bad at Lehman. This discovery caused market participants to question whether the government would support other large financial entities which they knew to be, or strongly suspected of being, in financial distress, when this support had previously been taken as a given.2) On pp.48-49, directly from Paumgarten:
[Investment-fund manager Simon] Mikhailovich reserves his greatest scorn, however, for the ratings agencies -- principally Moody's, Fitch, and Standard & Poor's -- the ones that determine a debtor's creditworthiness. Their work is necessary; no one would be able to root through the contents of every C.D.O. on his own. Banks and bondholders need food tasters. But the ratings agencies were paid by the packagers of the C.D.O.s to issue the ratings that made the C.D.O.s attractive -- and they routinely put AAA, or almost zero-risk, ratings on tranches of C.D.O.s which consisted of loans or mortgages that soon went bad. It is true: the peddlers of the chicken shit paid to have it magically pronounced chicken salad, a conflict of interest that most investors ignored. The recipe may have originated in the mathematical models of the banks, but it acquired its irresistible allure with the acquiescence of the raters, whether it was winking or pie-eyed. "They were the ultimate fulcrum, the enablers." Mikhailovich said.----------------
Listening to: They Might Be Giants - Bastard Wants To Hit Me
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