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to Pension Plans, Mutual Funds, IRA's, 401K's, Hedge Funds, Foreign Investors, etc. Wall Street Firms promoted these as safe investments which often carried "AAA Ratings" from companies like Moody's or Standard & Poors. This is where a major fraud occurred; many of these "pools" included "Sub-Prime Mortgages" and other "Toxic Mortgages" which were high risk. Brokerage Firms and their employees (Stock Brokers and Financial Advisors) made BILLIONS in profits from the sale of MBS's, CDO's, and CDS's.
Wall Street sold these Investments by saying thinks like
- That they would earn an above-market rate of return.
- That the investments were secured by real estate(people's homes).
- And that the Investments were INSURED against losses.
You may have heard about the $182 Billion Government Bailout of AIG (the largest insurer in the world) and wondered why the Fed was bailing out an Insurance Company. As the foreclosure crisis got worse, many of the "investors" made claims against the AIG Insurance that was protecting their portfolio. The amount was so huge that AIG was in serious danger of collapsing. The Government decided that AIG was "too big to fail" and that their demise would create a Financial Meltdown that would seriously damage Pension Plans, IRA's, 401K's, Mutual Funds, and Foreign Investors like China. Not good. The Big Banks get their money from the insurance claims so they don't have any incentive to approve loan modifications or take a loss on a Short Sale. And, as Paul Harvey would say."now you know the rest of the story!"