The Subprime Mortgage Crisis Devastated The Global...

Writing Assignment #2 Financial Market Yuxue Zhang The 2008 subprime mortgage crisis devastated the global financial market. People believed that the â€Å"Big Three† credit rating agencies played a significant role at various stages in the crisis. The Reuters, in an article published in 2011, even claimed that credit rating agencies triggered financial crisis. The Reuters believed that Moody’s Corp and Standard and Poor’s action of downgrading the rating on complex mortgages securities triggered the worst financial crisis in decades. However, the problems of rating agencies have existed for quite a long time and accelerated the crash down in some extend. Therefore, besides the â€Å"trigger†, I regard the credit rating agencies as the†¦show more content†¦Investors assume the credit rating agencies, which full of experienced finance experts, can present a trust worthy and correct rating of credit risks. By implementing the external credit rating information, excessive trust in the system of cre dit rating agencies weakens investors’ risk management practices. Therefore, when those big, authoritative rating agencies rate those subprime mortgages as AAAs, investors put more money in the subprime market and expected to make big money. At first, the investors did make a lot of money in subprime investments, and they invested more and more, until they saturated the market. When the analysts in credit rating agencies eventually realized the bubble of the subprime market and they began to downgrade large amounts of mortgage securities, it was too late. When people saw the decline of subprime market and an abrupt downgrading of mortgage securities, the investors panicked and the market crashed. The rating from credit rating agencies accelerated the flourish of subprime mortgage market at the beginning, and eventually pushed the process of the financial crisis. Then, why people should not trust the credit ratings? In the year 2007, Moody downgraded over 5,000 mortgage securi ties. The downgraded mortgage-backed securities were totaled to $1.9 trillion; some securities that had