Mortgage-backed securities, not "mortgage back securities". And you make it sound like the banks were lying, when in reality they thought the rating agencies were reviewing the underlying portfolios, which they weren't.

That is perhaps one of the most tortured sentences I've seen in quite some time. Let's unpack it: mortgage-backed securities were not all rated "AAA" (or the Moody's equivalent "Aaa", which is the same grade). In fact, even the best tranche of notes were unlikely to be AAA. For pension plans and trusts to invest, though, they only have to be investment grade, which is BBB-/Baa3. The C and D tranches of a typical CDO would still be investment grade (if they were rated at all; the lower tranches had less interest and were usually bought by the manager or other entities that accepted the risk). Your use of the term "MBA" is also wrong - I'm not sure what you're trying to refer to. I really have no clue, no matter how I try to turn it, what you mean by "these investment banks had to acquire capital for they discovered they were overleveraged" - the banks were underwriters who sold to insurance companies, pension plans and other institutions. Their problem was that they started issuing credit default swaps that they never realized they would have to pay out on. And that realization hit in 2008, when the shit hit the fan.

Huh? What are you smoking? Glass-Steagall was repealed under Bill Clinton in 1999 and its repeal was not motivated by a then tiny securitization and CDO industry. It was done to help underwriting requirements. I actually laughed out loud with the absurd "they were psychically paralyzed with fear" statement. I don't know what you do, but don't quit your day job to become a writer.

Insurasized? Did you even graduate from high school? I think you need more edumacation if you think insurasized is a word. You also seem to have a very poor understanding of the mortgage industry. All mortgages are repackaged and resold.

Uh...no. A Collateralized Debt Obligation is actually what you were attempting to talk about above. It is a repackaging of a repackaging of mortgages. Bank A sells 1,000 mortgages into a holding company that then issues notes against the receivables that are supposed to be sold, and the pool is overcollateralized to avoid default risk. That is a securitization. A CDO is when the notes from those securitizations are then themselves securitized to further spread risk. The problem was that there was too much money that needed to be deployed and not enough good assets to go around, so mortgage initiators started doing subprime loans, and the notion that successive waves of securitization would spread risk only held solid so long as the underlying pool of mortgages was mixed - once they were all shit, you could repackage it a million times over and still have shit. What sunk AIG was not the CDO market, but the CDS (Credit Default Swap) market. That was originally designed to act as a hedge for banks that found themselves holding CDO notes - it was an exact one-for-one hedge. The problem was that people realized you could buy the things without holding the notes in the first place, like a naked put (I'll let you look that one up).