What role did the AAA debt rating play in the MBIA?
MBIA was a company that sold and marketed the AAA credit rating. All of the bond insurers did. They figured out, even before the credit rating companies themselves, that the AAA rating was one of the most profitable brands in the world. What was the role of the AAA debt rating in the financial crisis? Ultimately, the credit rating companies couldn’t resist debasing the AAA rating. Wall Street was willing to hand Moody’s and S&P half a million dollars for stamping a AAA rating on a CDO or a security backed by home equity loans. All these AAA ratings created huge, hidden risk in the financial system because they effectively sucked all of the capital out of the banking system. If you held AAA securities you didn’t need to hold capital against that risk. The financial system nearly collapsed because AAA ratings on CDOs, and bond insurers and Fannie Mae and Freddie Mac and AIG were wrong. How did the rating agencies miss the problems and vulnerabilities of the MBIA? The credit rating agenci
