Mabel Yu our woman of the year at Vanguard
For a bond to get a AAA rating, it is supposed to have passed a particularly strong test. The rating agencies would simulate a worst-case scenario and see how the bond held up.
But those scenarios were sometimes perplexing to outsiders. Mabel Yu analyzed bonds for Vanguard, which manages $400 billion in bond investments. The new deals would land on her desk, with their AAA ratings. She says she could never get a straight answer about what the worst-case scenario really was.
"I got names of the rating agency analysts, and I asked them lots of questions," she says. "In the beginning, the questions would be 15 minutes to half an hour. But then it turned into hours, and many hours." She asked them about the possibility of house prices falling, of interest rates rising, of people not being able to refinance their mortgages. "If all of those things happen at same time, what would happen to our investment? I could not get a straight answer."
Yu says she was told repeatedly that she worried too much. "I felt so dumb," she says, adding that she was told, "Don't worry about it. Have a life."
Standard and Poor's says investors also have to make their own decisions. After Mabel Yu at Vanguard raised her concerns, Vanguard stopped buying those mortgage-related bonds.
