Guilty or not?

Rating agencies have been widely criticised for assigning AAA ratings to securitisations backed by subprime mortgages. Ashish Dev and Bo Qian argue that while the criticism is justified for some securitisation structures, there was a basis for assigning AAA ratings in others based on models used under Basel II

Collateralised debt obligations (CDOs) have earned a bad reputation over the past 18 months. Since the credit crisis began in earnest in August 2007, financial institutions have suffered billions of dollars in mark-to-market losses on CDOs backed by tranches of residential mortgage-backed securities (RMBSs), which in turn were referenced to pools of subprime mortgages. Some of these CDOs were backed by cash securities, while others were referenced to credit default swaps on super-senior tranches