2008 October 22 Wednesday
Credit Ratings Agencies Lowered Their Standards

Many causes contributed to the debt crisis. One of those causes: the credit ratings agencies became lax when rating securities.

Employees at Moody's Investors Service told executives that issuing dubious creditworthy ratings to mortgage-backed securities made it appear they were incompetent or ``sold our soul to the devil for revenue,'' according to e-mails obtained by U.S. House investigators.

The e-mail was one of several documents made public today at a hearing of the House Oversight and Government Reform Committee in Washington, which is reviewing the role played by Moody's, Standard & Poor's and Fitch Ratings in the global credit freeze.

Fitch, Moody's and Standard & Poors competed and the originators chose the ratings agency most likely to score their securities the highest. The result was a decline in standards by the ratings agencies.

Jerome Fons, a former managing director of credit policy at New York-based Moody's, told lawmakers that originators of structured securities ``typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality.''

These agencies deserve to fail at this point. But will they?

Within the ratings agencies they knew what was happening.

Moody's Chief Executive Raymond McDaniel told directors in October 2007 that Moody's was facing a dilemma in trying to maintain both market share and quality in the ratings paid for by issuers of the securities.

"The real problem is not that the market... underweights ratings quality but rather that in some sectors, it actually penalizes quality," he said, according to the documents. "It turns out that ratings quality has surprisingly few friends: issuers want high ratings, investors don't want ratings downgrades, short sighted bankers labor shortsightedly to game the ratings agencies."

McDaniel said analysts and managing directors are continually pitched by bankers, issuers and investors and sometimes "we drink the Kool-Aid."

The house of cards has fallen.

``Let's hope we are all wealthy and retired by the time this house of cards falters,'' one e-mail from an S&P employee said.

Are we just so far removed in time from the Great Depression that our whole society has forgotten old lessons learned and become reckless with debt?

Share |      By Randall Parker at 2008 October 22 11:41 PM  Economics Credit


Comments
Thai said at October 23, 2008 6:47 AM:

yes

http://suddendebt.blogspot.com/search?updated-min=2006-01-01T00%3A00%3A00-05%3A00&updated-max=2007-01-01T00%3A00%3A00-05%3A00&max-results=17

HellKaiserRyo said at October 24, 2008 7:54 AM:

Yes, Moody's and S&P are all part of an evil conspiracy to uplift minorities (for the people who believe that was the SOLE cause of the crisis| not implying that those are Randall's beliefs though.)

Stephen said at October 24, 2008 7:13 PM:

You're right HKR, its becoming clearer by the day. Minorities claim that they just wanted to own a home, have a permanent job, raise a family and give their kids a better chance at having a good life. But we know the truth - financially sophisticated minorities forced (probably at gun point) unsophisticated multi-national banks into repackaging their home mortgages into increasingly abstract securities that no-one understood - no-one that is except those low-IQ minorities. Then the minorities sprung the trap - they forced the poor innocent bank to sell the MBS to other trusting and unsophisticated multi-national banks (who no doubt were themselves forced to buy the securities by some gun toting minority).

The beauty of the evil plan only becomes apparent when you realise that by deliberately bringing down the global financial system those minorities hurt the real economy and the first group of people 'let go' are those same minorities who will then be unable to pay their mortgage - thereby proving that it was their fault all the time!

The symmetry is so perfect that there's no need to look any further for an explanation!

Big Bill said at October 25, 2008 10:23 AM:

HKR and Stephen, I don't blame NAMs. Collectively they are as ignorant as can be. They have persuaded themselves that every evil that befalls them is due to the white man and that actually they are quite decent (and even intelligent) fellows. This is rank foolishness, and an earlier generation of white gentiles would have had no problem laughing it off. Not so any more.

What I blame are those that can actually be held to a higher standard of reasoning and behavior: the white gentiles. It is they who have forgotten or denied the age-old white wisdom about NAMs, and (worse) have permitted their own children to be educated against their common interests.

Certainly minorities that are smarter than white gentiles have actively participated and helped NAMs formulate the best lines of attack and find the weak points in the white gentile psyche and therefore should not be trusted, but the fundamental responsibility rests with the white gentile minority.

It is white gentiles that let NAMs use the club of racism to get us to do stupid things against our own genetic interests. We can turn that around in a heartbeat by ignoring NAMs and the other tribes that enable them. As the economy collapses and the American infrastructure crumbles we are getting closer and closer to that instant of recognition.

Hopefully the examples of South Africa (e.g. http://zahell.blogspot.com) and California will keep raising white gentile awareness.


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