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Posted on 10/30/2008 5:41:47 PM PDT by ex-Texan
Executives at the country's leading credit-rating companies, whose optimistic assessments of risky investments helped fuel the financial meltdown, have privately acknowledged for more than a year that conflicts of interest contributed to the industry's failures, according to internal company documents released Wednesday.
The disclosures emerged at a heated congressional hearing where lawmakers grilled the heads of the three major rating companies, accusing them of betraying the public by letting corporate greed trump their responsibility to provide unbiased appraisals for investors. * * *
In one of the confidential documents obtained by the committee, Raymond McDaniel, chief executive of ratings firm Moody's, said analysts and executives are "continually 'pitched' by bankers, issuers, investors . . . whose views can color credit judgment."
"We 'drink the kool-aid,' " he wrote in a Oct. 21, 2007, memo to the board of directors. "Unchecked, competition on this basis can place the entire financial system at risk."
The three major credit-rating companies -- Standard & Poor's, Moody's and Fitch -- assigned some of their highest ratings to mortgage-backed securities whose risks were grossly underestimated. As homeowners began defaulting on subprime mortgages, it became clear that many of those securities were overvalued. The agencies finally downgraded thousands of those securities over the past year, contributing to the collapse of major firms and heightening the economic crisis. * * *
(Excerpt) Read more at oregonlive.com ...
Nobody pursued the truth about how rating system were co-opted. Or asked the raters how they were given pricey vacations or fed lavish dinners or provided with free alcoholic beverages. Or otherwise compensated for their biased 'independent opinions'. Nobody asked about bribes, either.
In short, profits ruled the credit rating agencies, too. Just like Mozilo's Countrywide Mortgage -- where profit was king and hype overruled accounting standards. And taxpayers are forced to pick up the tab.
What about open bribery on members of Congress ? Chris Dodds and Barney Frank are good examples of corruption. Low cost loans, lowers interest rates and special, preferred treatment constitute outright bribery. But nobody wants to open that can of worms during an election year. 'Nuff said by me on FR.
Yada, Yada, Yada But nobody listens to me . . .
What’s wrong with this post? Nothing...take a deep breath.
Here’s what’s wrong with the post: “But nobody listens to me . . . .” I simply told him why.
“We had blinders on”, say Obama supporters a year from now.
*Ping* !
Maybe they should bring back the old Roman punishment of decimation.
So then let’s see the slew of civil liability lawsuits against these people who wrote these fradulant loans, then sold them as more secure than they really were. Let’s see a slew of Federal indictments.
This is nothing short of fraud, and is punishable by imprisonment. Ask the executives of Enron.
The problem is not that they were drinking “the Kool-Aid”, it was that they were drinking bought-and-paid-for Dom Perignon.
1) Forbes
2) Businessweek
3) The Wall Street Journal
4) Money
5) IBD
6) ???
Nothing is funnier than someone trying to resurrect their image on the back of an economic downturn.
?
I looked up Marxist Monthly on the web and nothing came out and grabbed me. I thought you were referring to another publication by this name, i.e. some publication that pretends to be in favor of the free market system but is in fact a mouthpiece for Marxism, e.g. Businessweek, etc.
Give me some time.
An objective way to adjust the incentive structure would be for the government to step back, and simply mandate that the rater publish what (dollar weighted) percentage of bonds rated AAA (or equivalent) go into default within 5 years of having that rating, what percentage of BBB, etc. Have those figures be updated on an ongoing basis.
The regulatory agencies can then simply define "investment grade" according to probability of default. And if a rating agency declares too much junk as having a AAA rating, with the result that too high a percentage of AAA-rated bonds go into default, then that rating agency's AAA rating gets defined as junk -- creating an immediate downgrade of ALL the bonds it so rated.
The rating agency's other customers would act to prevent the agency from bestowing a good rating on junk, by threatening to all take their business elsewhere.
The greedy bastards knew exactly what they were doing when they defrauded the entire world by giving junk bonds AAA ratings.
A lot of people seem to want to blame those who purchased the securities. “Caveat Emptor” and all that rot. “They should have done their own research”. The fact of the matter is, Joe Bozo running the Macon County school pension fund is NOT going to have the capacity to analyze trasparent securitites, let alone these complex securities. That is why we have ratings agencies. They get paid one hell of a lot of money to reliably asses the risk on the bonds they rate and it is assumed that if reliable ratings can’t be given, they won’t.
I don’t blame the buyers of these junk bonds in the least. The tiny premium in interest they received did not tip them off to their junk bond status. I don’t have any sympathy for people stupid enough to buy high-yield bonds that are rated at AAA. If it seems too good to be true, it is. But when Treasuries are paying 5% and MBSs are paying 6.5%, that is no clue that you are buying junk bonds.
The bastards of the ratings agencies sold out to avarice and knew exactly what they were doing. This is no different than the greed we saw at all levels among the banks, lenders, brokers, builders. All a bunch of greedy bastards gone too far. Now nobody trusts the ratings agencies. Boo freaking hoo. When you lie out your ass and get caught, that is what happens.
I really think punitive penalties need to be levied against all of the institutions proven to have committed fraud, after the FBI investigates them. The problem is, I’m sure they are all broke or nearly insolvent. The bonuses and golden jet packs have all been spent or wired to the Caymans by now... Evil punks.
I WANT MY POUND OF FLESH!
And the title should correctly read Credit Raters Say, “We INTENTIONALLY AND WILLFULLY, Had Blinders On for Fun and Profit.”
Good post, except I want to spit blood I’m so furious. So, THANKS for the reminder to keep me good and boiling as we approach the election. Liars, Thieves, Crooks, and Weasels, the lot of them. The entire lot of them. The Billionaire Boys Club and Goldman Sachs right there at the top of the heap.
Nuff said? Almost. We aren’t seeing any lead flying yet. I have a Constitutionally guaranteed right to freedom of speech. Thank goodness the 2nd Amendment guarantees my right to free speech — with hollow-points...
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