They allowed the different tranches of lower rated bonds BBB, BB, etc. to be repackaged and sold as AAA rated bonds. The thought process was in the history of the US there had never been a rise in foreclosures across the US only in different "pockets". As a result, while some interest would not be repaid overall the bond would still make money. Little did they think or realize that when they did this everyone and there brother would sign up for these crappy loans across the US or maybe they did and did not care.
You can read a book called The Big Short which talks about the people who recognized what was going on long before the crash and made millions if not billions shorting the bonds.
HokieForever
Slashdot Mirror
They allowed the different tranches of lower rated bonds BBB, BB, etc. to be repackaged and sold as AAA rated bonds. The thought process was in the history of the US there had never been a rise in foreclosures across the US only in different "pockets". As a result, while some interest would not be repaid overall the bond would still make money. Little did they think or realize that when they did this everyone and there brother would sign up for these crappy loans across the US or maybe they did and did not care. You can read a book called The Big Short which talks about the people who recognized what was going on long before the crash and made millions if not billions shorting the bonds. HokieForever