Even the most heinous of financial crimes are usually – if not always – the bi-product of willing participants.  Admittedly, there may be only one “evil genius” in the mold of Bernie Madoff, but invariably there are many willing enablers.  These are the peripheral players to whom we might contribute some degree of culpability or at least benign neglect: Never asking the tough questions; uncritically following the crowd; accepting rewards for silence and moral passivity; and, putting introspection on auto-pilot.  ~PCQ

Background.  Before we get to “The Comeuppance,” we need to address what might be moralistically described as “The Pride before the Fall.”

Certainly, the boom and bust of the credit and housing markets of 2005-2007, can be attributed to many factors; there were multiple players and participants.  For example:

• There was pressure by the federal government to extend the dream of homeownership to persons who deserved it, but could not afford it;
• There was Wall Street’s securitization machine that encouraged the mass marketing of mortgages;
• Fannie and Freddie, heretofore wildly successful quasi-public corporations that seemingly served the secondary mortgage market well, both played a role in their own demise;
• There was the big investment banks’ creation of a Private Label secondary market, thus enabling home loans to be given to borrowers that Fannie and Freddie wouldn’t touch;
• Added to this were the financial and real estate industries, which convinced themselves that property appreciation was like a perpetual motion machine, and would continue forever;
• And then there was the American Public, whose insatiable appetite for homeownership turned them into lemmings, following one another over a financial cliff. Continue reading “Ratings Agencies Get Their Comeuppance – They’ve Been Downgraded! [Part One]”