The further revelations about the astonishing costs of the bank bailouts so far indicate just how much taxpayers’ money is now being used to plug the holes in the banking system. A key cause of the bank crisis is explained by the above IMF graph, charting the decline of some of the trillions of AAA structured credit assets created during the boom. AAA means “extremely strong capacity to meet financial commitments”, but now over 80% of the US AAA Collateralised Debt Obligations (CDOs) created between 2005 and 2007 are rated BB or lower, somewhere between junk bonds and default (and in some cases almost entirely worthless).
In terms of getting things totally wrong this is hard to beat. The belief in the end of boom and bust was shared as readily by the large investment banks and credit ratings agencies as it was by Gordon Brown, creating near endless amounts of “risk free” debt providing rocket fuel for property lending, private equity deals, and naturally, bonus pools.
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