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The Wall Street legend who helped blow up the world explains why his 'Frankenstein' creation went so wrong

Lewis Ranieri, father of the mortgage-backed security, explains how his "Frankenstein" creation went so wrong and blew up the world.

  • Lewis Ranieri is considered the father of the mortgage-backed security.
  • His invention enabled millions of Americans to afford homes, but its distortion and manipulation also helped cause the financial crisis.
  • He told
  • "It's absolutely true that many of us tried to stop it. But the fact is, it didn't stop," Ranieri said. "We, the creators, should never forget."

In the early 2000s, Lewis Ranieri was named one of the most influential Americans of the past century, before transforming a few short years later into one of the Americans who blew up the world.

Ranieri is the father of the mortgage-backed security, the financial innovation that enabled millions of Americans to afford homes before it was twisted and abused and became a tinder box that helped set the world economy aflame in 2008.

He invented the financial product at Salomon Brothers in the 1970s, and in a recent interview with Institutional Investor for its "War Stories" series he said he never could have predicted how everything came crashing down.

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The risks, he thought, were accounted for given the scrutiny of the ratings agencies like Standard & Poor's and Moody's, as well as oversight by regulators like the Securities and Exchange Commission.

"We could never have imagined that the ratings services could be bought. That they would basically, just the money would be so important they would break all of their own rules and rate things they knew shouldn't be rated triple or double or whatever. Ok, and that was unimaginable to me," Ranieri said.

"And then it was unimaginable to me that the SEC would not intervene. They never did. They were always silent. So all this is going on and they're nowhere to be seen."

The intention — to try help those who couldn't afford a traditional home loan — was noble, Ranieri said, but "

"It's absolutely true that many of us tried to stop it. But the fact is, it didn't stop," Ranieri said. "We, the creators, should never forget."

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