alt Hacker NewsNo, to be more specific, banks selling the collateralized mortgages that were subprime in risk as if they were prime and these risk ratings being accepted at their word and via collusion with the ratings agencies is what caused this.
There is no issue with collateralized debt as long as the risk is properly assessed, the whole point of securitization is that you can take on higher risk for higher reward of an asset that was previously just one single piece of risk.
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> subprime in risk as if they were prime
What if this winds up being the case for the trillions dumped into AI in hopes of future revenues?
https://www.reuters.com/business/oracle-corp-goes-high-stake...
> Cloud computing giant Oracle Corp is on the cusp of a junk-grade credit rating and its shares have tanked as the artificial intelligence hyperscaler becomes the fall guy of investors' concerns over the sector's debt-fuelled spending binge.
Is the risk on AI debt properly assessed?
Are these companies worth their incredibly high valuations?
> There is no issue with collateralized debt as long as the risk is properly assessed
Yeah... maybe think on that a bit in this context.
This is correct.
The nuance here, though, was that the CDOs and similar instruments were sold in a tranched fashion, and the super-senior tranche was made to look as if it was very low risk, as normal for tranches instruments.
But when your entire series of tranches all consists of trash, then which tranche you were in didn't really matter.
CDO and CDO2 instruments hid this distinction really well, and unfortunately the ratings agencies bought into it and sold crap as AAA securities.