Fanning The Lazy

clipped from econlog.econlib.org It seems that AIG and other institutions became lazy and relied on the investigations and reasoning of others. Fannie and Freddie were recklessly buying subprime mortgage backed securities, funded by their government guarantee. The major credit ratings agencies were eager to go along with government pressure to approve subprime MBS bonds. They were comfortable having a an effective monopoly as government-approved companies. So, I think the suits got it wrong, thinking: Why stay out of a market that everyone else has confidence in.? AIG got into trouble evaluating the risk of default for banks holding mortgage backed securities. Banks bought AAA rated mortgage securities, supposedly rock-solid. The AAA ratings were given by government-approved ratings agencies. Insurers like AIG and other institutions relied on those ratings, and insured those banks by selling credit default swaps, which seemed to be a conservative risk. The actual risk of those mortgage securities was far higher.