Living With New Realities

Banks originated loans but were less concerned with the underlying quality of these assets because they could quickly offload them to investors. And in the United States, mortgage brokers poured oil on the flames by originating toxic home loans. None of this could have happened without investors' insatiable desire for instruments with enhanced returns. These investors, in turn, were removed from the origination process and put a great deal of faith in rating agencies. When investors lost faith in the ratings, they lost faith in the assets.