Triple-A Failure

This Sunday’s New York Times magazine will include an excellent article on how the credit ratings agencies went about assigning triple-A ratings to pools of subprime mortgages. In my opinion, it is required reading for all fixed-income investors.

Triple-A Failure
By ROGER LOWENSTEIN

From the investment bank’s point of view, the key to the deal was obtaining a triple-A rating — without which the deal wouldn’t be profitable. That a vehicle backed by subprime mortgages could borrow at triple-A rates seems like a trick of finance. “People say, ‘How can you create triple-A out of B-rated paper?’ ” notes Arturo Cifuentes, a former Moody’s credit analyst who now designs credit instruments. It may seem like a scam, but it’s not.

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