[Glenn]

and another sign of what precarious times we are living in

Japan survived something similar, as did the rest of capitalist Asia. We'll do fine in the long run.

[xzins]

So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

This does sound suspicious. It sounds like they were giving attractive packages that actually had something bad hidden inside.

It's like a pitcher trade in baseball where the trading team knows that the traded pitcher has a medical condition that will blow his arm out, but they don't reveal it.