The Big Downgrade That Fueled the Subprime Crash
- Ten years ago today, the AAA subprime mortgage facade crumbled
- Ratings firms started cutting billions in mortgage bonds
Las Vegas Housing
Photographer: Jacob Kepler/Bloomberg“I’d like to know: Why now?” asked Steve Eisman. It was July 10, 2007, and the hedge fund manager was on a 10 a.m. conference call with analysts at Standard & Poor’s, which had just decided to put $7.3 billion of subprime mortgage bonds on watch for downgrade.
A growing number of investors like Eisman had been betting on a crash as overdue home loans rose. But up to that point, much of the world was still putting its faith in the safe-as-Treasuries ratings that had been awarded to the bonds, which helped bankroll $445 billion of risky mortgages in 2006 alone. From that day onward, even the most cautiously optimistic economist or sanguine Federal Reserve governor should have known that the housing mess and the subprime debacle wasn’t going to be contained.