[quote=SK in CV][quote=CA renter]
Again, the reason for the lower underwriting standards was the desire/need to take on more risk (because of the low rates/Fed). Changes in mortgage securitization and derivatives enabled the lending standards to fall through the floor…and allowed the credit rating agencies to give the products high ratings. Everybody was making speculative bets because everybody was looking for higher yield/higher-risk “financial innovations.”
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This makes no sense whatsoever. Three sentences and three claims of “a caused b”, “a enabled b” and “a because of b”. Yet there is no nexus between any of the “a” and “b”.[/quote]
I know you understand how the (mis)pricing of risk — specifically, the underpricing of risk due to the Federal Reserve’s interest rate manipulations — causes investors move further out on the risk curve and into more speculative investments…and that this spurs the creation of ever-more speculative and risky products because of the increasing demand for these products.
If some of these speculative investments (derivatives, in this case) are also presented as lowering risks even further, it’s easy to see how underwriting standards on certain types of related securities would be lowered as a result. It is all related.
