You might consider blogging this absolutely hilarious paper from a couple of people at the New York Fed. The good stuff starts on page 14, where we learn about a typical pool of securitized mortgages originated by New Century Financial. There were about 3900 mortgages in the pool (made in 2006), and the pool had the following characteristics:

+ more than half are cash-out loans
+ 83% have FICO scores below 660
+ average (average!!) total debt service to income is 41%
+ 88% are hybrid ARMs with payment adjustment in 2-3 years
+ typical adjustment 25 to 40 % increase in payment
+ adjustment is bigger if rates rise
+ half (!!!) the loans are “stated income,” i.e. liar loans

The last point I pulled from the prospectus.

Incredibly, 79% of the tranches in this dog were rated (by both Moody’s and S&P) AAA. How are the people who asked for and gave that rating not in jail? To be clear, AAA means really, really, US gvt treasuries safe.

Clearly, the people and institutions buying these securities were trusting the ratings agencies — nobody smart who read, digested, understood, and thought about that prospectus ever bought any of these (except as a regulatory dodge).

The conclusion of the paper is also really funny in an arch, extreme understatement kind of way.