The Great Financial Crisis happened because Wall Street was financing homes for people who couldn’t afford them.
Leading up to the GFC, there was a voracious appetite from investors for “AAA”-rated mortgage debt. So lenders would make lots of loans to subprime borrowers and sell them to Wall Street. Wall Street would pool them together and one of the major ratings agencies (like Moody’s or Standard & Poor’s) would stamp the steaming pile of garbage with AAA.
AAA by Moody’s definition means the investment “should survive the equivalent of the U.S. Great Depression.” In other words, it’s rock solid.
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