[Winston]

This is the result greed from both of them. CDOs (collateralised debt obligations) were nothing more than sub-prime home loans packaged up in to securities and sold at a AAA rating, but securities with a reported return of investment that was too good to ignore. Some investment funds, eg Pensions are required by law not to invest in high risk securities such as these but no one looked in to what CDOs were. They did not understand or more likely did not care to examen these financial tools more closely.


Greed breeds fraud and there are fewer examples of this we can look at. First you have one of them finding all the sub prime debt and wilfully packing it up in a tasty looking investment. However it's a box that is full of debt that can never be repaid made to look like a safe investment with high returns. In the face of that you have the other purchasing these for funds on behalf of there cliants, with out properly looking at these CDOs.


As I understand it, used to be someone had to have some sort of income before they could get a mortgage or a loan back in the '70's, however why worry about the borrower paying back there debts if you plan on selling it on to a bunch of saps? And that there was the problem. As long as bank intended to repackage and sell on these bad debts then they were going to make money anyway. They lost there incentive to make sure the loan was able to be paid back. So the fraud its self was encouraging to much lending, lending of a very predatory nature that would only end in one way. The rest is history.