How Humpty Dumpty Broke

"Everyone was pinning their hopes on house prices continuing to rise," says Kai Gilkes of the credit research firm CreditSights, who spent 10 years working at ratings agencies. "When they stopped rising, pretty much everyone was caught on the wrong side, because the sensitivity to house prices was huge. And there was just no getting around it. Why didn't rating agencies build in some cushion for this sensitivity to a house-price-depreciation scenario? Because if they had, they would have never rated a single mortgage-backed CDO."

From Wired.

Says former Federal Reserve Board Governor Susan Schmidt Bies:

"As regulators, we didn't see the whole picture of how poorly the loans were being underwritten, because there's so many regulators in this country. None of us saw the whole picture, and we didn't tighten down enough, fast enough on it," Bies said.
...
"I think everybody just really lost touch with how much the underwriting of loans had deteriorated," Bies said.
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Before the collapse, she said, "every bank risk model, every securitizer, broker dealer, all the rating agencies, were all basically where I was."

"I just didn't realize it was as bad as it was," she said.