Economy: Inside Job questions

[GLorym]

I have an exam in international economic structure subject, and I decided to rewatch Inside Job as a refreshing.
I've got a question and just gonna write it down here in case some economic savvy would like to shed some light and answer.

1. Subprimes were the loans with the highest risks, therefore with the highest interest rates. The investment banks payed the credit rating agencies to rate them AAA (best) and that, combined with the huge interest rates, was the reason investors around the world bought these subprime CDOs. My question is how did they bought that AAA rating when they saw the huge interest rates since big interest rates necessary derive from high risk loans?

[Slaskra]

My question is how did they bought that AAA rating when they saw the huge interest rates since big interest rates necessary derive from high risk loans?

A lot of subprime debt risk was obscured by the pools of debt they were placed in, with "legitimate" debt. Ratings agencies didn't want to lose out on fees from competition with other agencies, so giving a ratings boost to a security was a good way to guarantee continued business. Also, many investors didn't even bother to do their own due diligence. They preferred to rely on other people's analysis than make their own judgments about a given financial asset, which is the rookie-est of mistakes.