William Poole, president of the Federal Reserve Bank of St. Louis, said today that institutional investors should take some of the blame for turmoil in subprime-related collateralized debt obligations.
In prepared remarks to a meeting of financial planners in St. Louis, Mr. Poole noted the role of investors who bought those securities without conducting an adequate analysis of the underlying investments.
Investors too readily accepted the AAA ratings at face value. A reach for yield with inadequate attention to risk is another basic lesson that apparently cannot be relearned often enough, Mr. Poole said. I have a hard time understanding how so many investment professionals could have been so wrong.
Among other causes for the subprime debacle, Mr. Poole cited home buyers decisions to buy homes they could not afford; mortgage brokers eagerness to extend risky loans; investment banks that jeopardized their reputation by securitizing these mortgages; and rating agencies AAA rating for securities backed by subprime mortgages.