Yesterday, I wrote about the basics of Asset Backed Commercial Paper (ABCP) and how the problem came to be. Today I’ll be focusing on who’s to blame in this mess.

 

 

Many investors are focusing their frustration on their brokers. Nobody calls their broker and asks to buy Random Trust #1, they have all been sold to clients as good places to park cash and earn a little extra interest. So now that things have gone wrong, the broker becomes the immediate target. They sold the product.

 

It would be the broker’s fault if they had sold clients ABCP out of good faith. If they took undue risk and pushed it as something it wasn’t. But they didn’t. These products were all rated highly by firms like DBRS, whose sole purpose is to evaluate the credit rating and risk of products. If these firms would have done adequate work, there wouldn’t be a major problem.