>>That doesn't make any sense. The derivative products were rated AAA.
Those ratings were created as a result of significant conflict of interest. You should read John Bogle's treatise on the subject (he's the founder and retired CEO of The Vanguard Group):
"Market participants—now dominated by speculators, not investors—also joined the
parade of miscreants, and our professional security analysts failed to do their job of appraising company balance sheets, largely ignoring the huge credit risks assumed by the new breed of bankers and investment bankers. And let’s not forget our credit rating agencies, which happily bestowed AAA ratings on securitized loans in return for enormous fees that were paid in return by the issuers themselves. (It’s called “conflict of interest.”) Yes, there’s plenty of blame to passaround."
Those ratings were created as a result of significant conflict of interest. You should read John Bogle's treatise on the subject (he's the founder and retired CEO of The Vanguard Group):
http://johncbogle.com/wordpress/wp-content/uploads/2006/02/P...
"Market participants—now dominated by speculators, not investors—also joined the parade of miscreants, and our professional security analysts failed to do their job of appraising company balance sheets, largely ignoring the huge credit risks assumed by the new breed of bankers and investment bankers. And let’s not forget our credit rating agencies, which happily bestowed AAA ratings on securitized loans in return for enormous fees that were paid in return by the issuers themselves. (It’s called “conflict of interest.”) Yes, there’s plenty of blame to passaround."