In fact, however, the ratings agencies quite explicitly considered the possibility that there was a housing bubble. They concluded, remarkably, that it would be no big deal. A memo provided to me by an S&P spokeswoman, Catherine Mathis, detailed how S&P had conducted a simulation in 2005 that anticipated a 20 percent decline in national housing prices over a two-year period—not far from the roughly 30 percent decline in housing prices that actually occurred between 2006 and 2008.
