Drop Moody’s Into the Volcano

Why haven't the rating agencies that were complicit in the subprime-mortgage securities scandal suffered the fate of Arthur Andersen? Despite some moves in Congress to change their behavior, U.S. authorities are still treating the agencies with extreme gentleness. Moody's and Standard & Poor's, the two giants of the industry, are still around despite causing the loss of hundreds of billions of dollars by badly rating subprime-mortgage-backed securities. Not only that, they are basically doing business the same way, taking fat fees from the investment banks whose securities they rate. In testimony before the House Committee on Oversight and Government Reform on Wednesday, a former Moody's managing director, Eric Kolchinsky, alleged that the firm was criminally deceiving investors by purportedly inflating ratings on securities even into the current year, long after the subprime scam had been exposed and the market crash had occurred. Richard Cantor, the firm's chief risk officer, dismissed the allegation as "without merit" at the hearing, but allowed that Moody's did "not give a high grade" to its own performance.

.... It's important to understand why Moody's and company live on, and why they haven't been forced to endure the rough justice administered to Arthur Andersen. The government is simply too afraid to let that happen. Like many of the big banks, the ratings agencies have been deemed too big or important to the system to fail. Indeed, their prominence in the financial landscape is an ironic result of the government's efforts to fix the system after the Wall Street mania of the '20s led to the Great Depression. "Back in 1936, the bank regulators told banks if you are going to buy bonds, and have them in your portfolios, those bonds cannot be speculative. They must be investment grade. Who is the arbiter of what is speculative and investment grade? These handful of rating agencies," says Lawrence White, a financial expert at New York University. "In essence, the bank regulators were outsourcing this safety decision. The rating agencies' judgments secured the force of law." What a scam. We are such gullible suckers for letting them do this to us.

The ratings agencies need some attention from Mr. RICO.

They make you pay them to play, only to feed small-fry investors disinformation, and profit from their insider status.

Why haven't the rating agencies that were complicit in the subprime-mortgage securities scandal suffered the fate of Arthur Andersen?

It is my recollection that Arthur Anderson was charged with a felony, which effectively put it out of business. It was later found not guilty, but that was too late because it was already dissolved.

Michael Hirsh might need reminding—the SCOTUS ruled that the prosecution was wrong in the Andersen case—unfortunately , it was too late to save that perfectly honorable company .

The ratings agencies need some attention from Mr. RICO.

Exactly. They're either a scam or they'd be screaming for the heads of the entities that were making them look bad.

Quick, somebody call Barney Frank!

In the end, he'll know what to do...

Frowning takes 68 muscles.
Smiling takes 6.
Pulling this trigger takes 2.
I'm lazy.

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