Saturday, April 24, 2010

Rating credit agencies rate right up there

Wall Street got away with the bonus bucks and bail out because of its influence in Washington and on credit ratings agencies. Had either of those two other institutions failed to play ball, Wall Street would never have got to first base with its credit shenanigans.

This post is (again) about the agencies.

How credit watchdogs fueled the financial crisis
Lawmakers are now asserting that credit rating agencies (CRAs) like Moody's Investors Service and Standard and Poor's Ratings Services failed to expose the lurking dangers.

"Rating agencies continue to create an even bigger monster - the CDO Market," wrote one S&P employee in an internal e-mail in December of 2006. "Let's hope we are all wealthy and retired by the time this house of cards falters. :o)."

The Subcommittee is accusing the credit agencies of contributing to the crisis in several major ways: By using ineffective models to measure risk, by inflating ratings because of pressure from banks, by ignoring early warning signs and by failing to quickly disclose the risk on existing products once it was discovered.

In his testimony, Richard Michalek, former vice president of the Structured Derivative Products Group at Moody's admitted that he felt constant pressure to accept deals, even if they looked risky.
The Congressional watchdogs, of course, bear as much blame, what with their setting the so-called "investment" bank dogs off the regulatory leash and allowing "mark-to-bark" accounting gimmicks. But Guambat digresses.

Another ratings agency failure is suggested in the following article: the failure to have enough knowledge of what they were dealing with to properly to dig deep enough to even ask the right questions.

UPDATE 1-Ex-Moody's exec didn't know Paulson shorted Abacus
A former senior official at Moody's Corp said he would have liked to have known that hedge fund manager John Paulson was shorting a Goldman Sachs Group Inc derivatives product when Moody's was rating it.

"I did not know that. I'm fairly sure that my staff did not know either" about Paulson's involvement, said Eric Kolchinsky

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