I'm curious how the investment vehicles backed by subprime mortgages got such good ratings from S&P, so that everyone bought into them. I mean didn't anyone see that they were merely paper assets?

That's a question nobody on this forum is going to be able to answer, but I say illuminati.

It's a risk rating, so there is going to be some risk. But having all fail in the space of a few months is like flipping heads one thousand times. There probably was a conspiracy behind the ratings.

If the credit rating agency gives a secure rating, then the investments will attract more money. The business selling the investment is now earning more money. So there is an obvious incentive to have a high rating.

If the increase in revenue to the business is greater than the amount they will have to pay under the table to a credit rating agency, then the business may pay the credit rating agency for a good rating.