Why the Ratings Agencies Deserve the Death Penalty The very belated Federal civil suit against Standard & Poors is based on one very specific deal, with an extremely egregious email trail. Looking at the entirety of the crisis, the Credit Rating Agencies (the properly blamed CRA) were major players. Standard & Poor’s and Moody’s as well as the much smaller Fitch ratings agencies all appear to be culpable for similar frauds. Here is what I accuse them of doing: 1.
Time for Legal Liability for Rating Agencies “Ratings firms fear litigation more than they fear regulation because past regulation efforts haven’t “been that draconian.” -Scott McCleskey, a former Moody’s compliance officer who has testified before Congress about the industry. Of all the various contributors to the financial crisis and economic collapse, none loom larger than the Ratings Agencies. They were the prime enablers of the entire crisis, allowing global asset managers to purchase all manner of junk paper due to their triple AAA rating. Had these various securitized RMBS been rated properly, i.e., reflecting their true value and risk factors, most of the crisis would have been avoided. The big 3 ratings agencies have escaped much blame, liability and scrutiny for most of the post-crisis period.
Rating agency worker: 'I am genuinely frightened' | Joris Luyendijk | Comment is free We are meeting in the heart of the City after the banking blog called on rating agency employees to talk about their experiences. The man I am meeting is British, in his early 40s, a fast talker and very friendly, the sort of person to apologise profusely when arriving four minutes late. He orders an orange juice. "Every time I read about a new financial product, I think: 'Uh-oh.' Every new product is described in those same warm, fuzzy phrases: how great they are and how safe.
Rating Agencies and sovereign debt markets
S&P was Flat-Out Wrong — No Caveats"
Rating Agencies and the securitization process
Michael Hudson: The Case Against the Credit Ratings Agencies By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics. Why ratings agencies public selloffs rather than sound tax policy: The Kucinich Case Study
Nationally recognized statistical rating organization A Nationally Recognized Statistical Rating Organization (NRSRO) is a credit rating agency (CRA) that issues credit ratings that the U.S. Securities and Exchange Commission (SEC) permits other financial firms to use for certain regulatory purposes. Originally, seven rating agencies were recognized as NRSROs, a number that dwindled as a result of mergers to six by the mid-1990s and then to three by 2003. As of November 2011, nine organizations were designated as NRSROs. Ratings by NRSROs are used for a variety of regulatory purposes in the United States.
The reaction of politicians to Moody's decision to put the UK's AAA rating on "negative outlook" was predictable - and predictably tendentious. The Chancellor described it as "proof that, in the current global situation, Britain cannot waver from dealing with its debts" while the Shadow Chancellor said it was a "significant warning." They are both wrong. It proves nothing and signifies less. Not the Treasury view...: Moody's downgrade: both Osborne and Balls get it wrong
Rating Agencies and the subprime crisis
Is the SEC Finally Taking Serious Aim at the Ratings Agencies? If the grumblings in the comments section are any guide, quite a few citizens are perplexed and frustrated that the ratings agencies have suffered virtually no pain despite being one of the major points of failure that helped precipitate the global financial crisis. If there were no such thing as ratings agencies (i.e., investors had to make their own judgments) or the ratings agencies had managed not to be so recklessly incompetent, it’s pretty unlikely that highly leveraged financial institutions would have loaded up on manufactured AAA CDOs for bonus gaming purposes. But the assumption has been that the ratings agencies are bullet proof.
More shocking news about the inept rating agencies: “The agencies rated billions of dollars worth of these bonds, mostly in the last two years. With shocking rapidity, even some of those triple A-rated bonds have defaulted. Of the more than $85 billion of re-remics issued since 2009, an estimated $30 billion may be under review by S.&P., according to Bloomberg News . . .As everyone knows by now, the credit ratings agencies played an enormous role in creating the conditions that led to the financial crisis. Surprise! Ratings Agencies Still Suck!
Rating Agencies - curators...
In 1996 Thomas Friedman said: “There are two superpowers in the world today in my opinion. There’s the United States and there’s Moody’s Bond Rating Service. The United States can destroy you by dropping bombs, and Moody’s can destroy you by downgrading your bonds. And believe me, it’s not clear sometimes who’s more powerful.” We may have an answer soon. Dave Dayen is watching the ratings agencies, particularly S&P, say that a clean debt ceiling increase won’t cut it, and that there needs to be a $4 trillion dollar deal in order to keep the United States’ credit rating secure: The Activist Ratings Agencies and Their Poor Public Sector Predictions
The credit-rating agencies remain pivotal in the world economy, despite their inability or unwillingness to rate credit-worthiness in a credible way in the years running up to 2007. Wolfgang Munchau's chilling op-ed in today's FT warns that the incalculable possibility of France losing its AAA credit rating means that the ECB is currently in the business of producing another opaque financial product, to rival the murky mortgage-backed CDOs that produced the (first) financial crisis. This pantomime of quantification, resting on techniques of risk analysis whose authority has collapsed, is therefore adding to the uncertainty of the future, rather than alleviating it. The problem that policy-makers, banks and investors currently face is the absence of any higher perspective, than those which produced this mess in the first place. potlatch: lets rate the credit raters
Al Jazeera interview on Rating Agencies EmailShare 0EmailShare I’ve done numerous interviews on Al Jazeera’s news and business programs over the last 5 years; this is the first one I’ve been sent a clip of–and I’ll try to keep getting them now that the ProfSteveKeen YouTube Channel is up and running. The topic was the role of the Credit Rating Agencies and their role in the crisis. Though the interviews are short new pieces and don’t leave time to get into topics in any great detail, the fact that Al Jazeera covers topics like this in some critical detail puts it several steps ahead of the media pack, especially in the US and Australia. I am a professional economist and a long time critic of conventional economic thought.
So What? By James Kwak Everyone (well, the media at least) seems to be acting as if Moody’s downgrading the United States would be a bad thing. I feel like I must be missing something. First of all, we know what bond ratings are worth. See, oh, the entire past decade for evidence.