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the form of MBSs that had significantly declined in value because the assets backing the securities had declined; homeowners had simply walked away. Wall Street wrote off a significant portion of the loan books related to these complex securities by marking to market the assets as required by accounting rules, thereby incurring significant losses. Significant losses as a result of these write downs left some banks with a problem of low capital reserves and caused them to raise more capital in order to meet the reserve requirement, which exacerbated the problem further. Unfortunately, by the time Wall Street realized that the scheme they had orchestrated had failed, the impact of subprime lending had already spread around the world in the form of toxic products that had been sold to investors worldwide.

Rating Agencies:

It would not be fair to point to everyone else, but the rating agencies for the fall of Wall Street. Rating agencies have played a big role in the shenanigans of Wall Street. Rating agencies main function is to provide investors with the most reliable information regarding products they are investing in. Sadly, rating agencies forgot to update their rating models when Wall Street entered a new era of using complex financial products or was it that they were profiting from rating bad securities highly? It appears as if rating agencies did not understand the level of risks involved in these new products and failed to factor in the risks accordingly.

Rating agencies' biggest mistake was treating these risky securities in the same manner as investment grade securities, by essentially implying that no skin in the game' is the same as having skin in the game'. Since when is a zero percent down payment mortgage similar in risk to a mortgage requiring a down payment? Had these instruments been understood, it would have been obvious from the beginning that the assets underlying the securities involved were nothing but risky and this would have helped investors with low risk appetite and prevented the problem of toxic assets that spread like a virus. How some of these securities continued to get investment grade rating is nothing but perplexing to many outside Wall Street circles.

Regulation:

More important than anything else, regulation has been missing in some parts of the financial industry. It cannot be expected that the financial system will function without many problems if there is no oversight from regulators. Regulators have to create an environment

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