Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions
Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions ArXiv ID: ssrn-1027475 “View on arXiv” Authors: Unknown Abstract Many of the current difficulties in residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs) can be attributed to a misapplicati Keywords: Residential Mortgage-Backed Securities, Collateralized Debt Obligations, Misapplication of Models, Credit Risk, Structured Finance, Fixed Income / Structured Credit Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper focuses on conceptual critique and narrative analysis of financial models without introducing advanced mathematics or providing empirical backtests and code. It addresses market mechanisms and regulatory failures, which aligns more with theoretical discussion than quantitative implementation. flowchart TD A["Research Goal<br>Determine why misapplied bond ratings<br>cause RMBS & CDO market disruptions"] --> B{"Key Methodology<br>Literature Review & Case Study<br>on Rating Models"}; B --> C["Data / Inputs<br>Historical RMBS & CDO data<br>Rating agency methodologies"]; C --> D["Computational Process<br>Analysis of model assumptions<br>vs. actual credit risk"]; D --> E{"Key Findings & Outcomes"}; E --> F["Overreliance on flawed models<br>underestimated systemic risk"]; E --> G["Misapplication led to<br>mispriced securities"]; E --> H["Triggered market disruptions<br>in structured finance"];