From Tuesday’s WSJ:

"In an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody’s Corp. said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles.

The credit-rating firm is considering an overhaul of
its rating procedures that could include new labels to help investors
distinguish collateralized debt obligations and other
structured-finance investments from corporate bonds and Treasury
securities. . .

More broadly, the ratings firm is trying to decide whether to add
warning labels
that essentially acknowledge the limitations of its
ratings."

>
Let me make sure I understand this:

1. Moodys (and S&P and Fitch’s) labelled a bunch of horrific junk — RMBS, CDOs, CDS, and other stuff — high quality AAA.

2. The banks and brokers all shoveled this crap to their clients around the world, many of whom then promptly blew up.

3. Once the music stopped, these banks and brokers got caught holding loads of this AAA rated shit paper, leading to $130 billion — and counting — in write downs.

4. The banks then saw their credit ratings get downgraded by the same companies that rated the original crappy paper AAA.

AND NOW THE SOLUTION PROPOSED BY THOSE SELF SAME RATING AGENCIES IS TO PUT A WARNING LABEL ON THEIR RATINGS?

Are you shitting me? Words fail me . . .

I’m thinking waterboarding the entire staff is the way to go with these criminal idiots, and instead, they think a mattress tag is a solution

Well that’s just fine. I’ll write the warning for them:

WARNING: THESE BONDS HAVE BEEN RATED AAA BY A MAJOR RATING FIRM. THESE RATING FIRMS HAVE PROVEN THEMSELVES TO BE CLUELESS, MONEY-LOSING INCOMPETENTS IN EXCESS  OF A TRILLION DOLLARS IN LOSSES. THEY WERE PAID HANDSOMELY BY THE BOND UNDERWRITER, AND ARE HOPELESSLY COMPROMISED. PURCHASERS OF THESE BONDS ARE ADVISED TO  IMMEDIATELY  KILL THEMSELVES, THUS SPARING THEIR LOVED ONES EMBARRASSMENT IN THE FUTURE. ALSO, THESE BONDS MAY LOSE VALUE. I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. WHILE PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS, YOU SHOULD BE AWARE THAT PAST PERFORMANCE ALSO SUCKED. DONT BLAME US IF YOU LOSE ANY MONEY, AS WE HAVE NO IDEA WHAT THE F$#@ WE ARE DOING ANYWAY. REALLY, YOU ARE ON YOUR OWN.

Now thats a disclosure . . .


>

Source:
Moody’s Weighs Warning Labels For Its Rating
AARON LUCCHETTI
WSJ, February 5, 2008; Page C1
http://online.wsj.com/article/SB120215330254641705.html

Category: Corporate Management, Credit, Derivatives, Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Moodys Warning Labels (sub-prime version)”

  1. Stuart says:

    can you spell

    C-L-A-S-S A-C-T-I-O-N

    rating agencies = RIP

  2. BuffaloBob says:

    Until they change their business model, and get paid by buyers, not issuers, the rating agencies will have no credibility.

  3. hal says:

    this is like an auditors CPA letter–saying managementt is responsible for financials even though we sent a crew of auditors to look over the books and were paid handsomely.

    But, wtf is new?

  4. jm says:

    You left out the part that goes, “Removing this tag is a Federal crime ,,,”

  5. chris says:

    barry, you got a better solution? on a seperate but related topic, reselling this junk to fannie mae with the new super jumbo loans as part of a bailout stimulus plan seems kind of criminal. If these loans bang up fannie mae like they banged up countrywide, who holds the bag?

  6. Mich(IDX1881) says:

    The good news for American public is that if it wasn’t for these guys, those toxic waste would all end up in American soil, now they are shipped worldwide.

    “SHARE THE PAIN” is the motto here, nothing more, nothing less.

    So looking back,
    - Dot.com bubble bursts, FED moves the buble to Real Estate
    - Everybody knew the RE bubble was going to burst, so they created those CDOs, market them AAA and shipped all around the world.
    - Another clue of the RE/Credit bubble bursting was the change in consumer bankruptcy rules

    anyway, now that those are bursting the next NATURAL step is increased rates on mortgages, which to me sounds like inflation.

    Why increased rates?
    1-) Because that is a way of justifying lower house prices (e.g. “I am expected to pay $1200 per month (150K house at 9% interest) to get that same house in 2009, which is essentially same as buying it in 2004 (Same house at 200K with 6% interest))
    This will create interest for buying house too (i.e. I better buy a house before interest rates go up even more)
    2-) Because China and others will not be satisfied with the measly returns for the government debt.
    For years, they said “oh dear American friend, here, cheap money for your people, buy more so we can manufacture more”, that was win-win at the time, now that they see Americans are changing attitudes, the show is over so the landlord (e.g. China) will ask for a rate/rent increase

    In the meanwhile, people with their 401Ks will lose their retirement savings to shorting institutions (GS, hedge funds, etc.) and one day when they can’t take it anymore, park their money to some 2% paying money market fund.

    So, the sooner we get the interest rates higher, the better for the greater good (so 401Ks can switch from stocks but don’t get silly returns)

    Everyday it gets delayed, the more the public loses.

    Think of buying QIDs not as shorting the american dream, but as an hedge to decreasing value of your home.

  7. Winston Munn says:

    I’ve just installed Moody’s as the 3:1 favorite in this year’s Upperclass Twit of the Year.

  8. Marcus Aurelius says:

    Barry! My man! Tell ‘em like it is!

  9. Barry,

    What is going to happen if the markets and the Bank of England and The European Central Bank continue on uncoupled from the Fed?

  10. Leawoodblues says:

    Barry – LOL
    Thanks. I needed a good laugh…….That warning label is priceless.

  11. Peter Davis says:

    Is there anybody in institutional Wall Street who isn’t morally bankrupt anymore? To paraphrase “The West Wing’s” Josh Lyman:

    “I’m so sick of Wall Street I could vomit.”

  12. Tiny Tim says:

    “PURCHASERS OF THESE BONDS ARE ADVISED TO IMMEDIATELY KILL THEMSELVES…”
    Not a wise thing for a pundit to do, Barry. Retract, retract, retract! Then disclaim it.

    Wanna stop NYC’s Insane Clown Possie, then everyone should immediately unload, even at a loss, because this week will crank global Finance, REIT, energy and commodity stocks down the toilet, then go sideways for a few years.

    Starve the looters, then drown them in debt.
    Starve the looters, then drown them in debt.
    Starve the looters, then drown them in debt.

    Keep hope alive.

  13. Street Creds says:

    Damn thats hilarious!

  14. ~mikey says:

    My new favorite adviser, R. U. Shittinmee! Love it! QID (isn’t that four times a day?) ~mikey

  15. Katie says:

    Thanks for the early morning laugh!
    It is just hard to believe that they were simply clueless. If they really were they should close shop.

  16. Doug Watts says:

    Wow !!!!! Well said, Barry. Thank you. I would like to also give credit to a writer named “Longwaver” who wrote the following:

    The bailout is hilarious… So I’m sitting here holding a flaming bag of shit, but I have this insurance policy that tells me that what I’m really holding is a dozen long stem roses….

    Some guy tells me that my insurance is no good so I start to worry that I might have to admit that I’m holding a flaming bag of shit…

    Now luckily another guy comes along and tells me that the insurance is just fine….

    Wheww… I feel so much better.. .

    http://tispaquin.blogspot.com/2008/02/longwaver-explains.html

  17. Doug Watts says:

    Ken Lay lives !!!!

    In UR DNA !!!!

  18. PONCH says:

    I have been reading your stuff for a couple of weeks, and I enjoy it. With this post, I have become a genuine fan. Classic comedy.

  19. Jay Weinstein says:

    Not like you BR to be so wishy-washy….this market getting to you?

  20. ECONOMISTA NON GRATA says:

    Barry:

    You are kind and charitable. Personaly, I believe that they should all be shot. And, if I were the Dictator, that’s exactly what would happen.

    Have a great day,

    Econolicious

  21. Justin says:

    OK, I’m far from the biggest brain, but I do have the ultimate and only solution to the world’s economic whoose: Everybody turn in their money to the (new world) treasury department, and let them re-establish a fiat value, (it mightest well equal one and denomination there of), hand it out to every person on the planet, not in equal amounts but in lottery style fashion – some getting much more than others – vis a vis. The people in the know will eventually aquire the bulk of it, like always. You say this never will happen – things do look terrible out there. And I’m not an alarmist, just a realist. We are going to have an Argentina style meltdown. Oh! the bond rating agencies? That is a hard one – how does one develope a system whereby the invisable hand, an equilibrium price can be reached? Can we not create a more fluid market for these things? Why are the prices so sticky? Could you break them up into very small denominations, and then let the average investor take part in the bid/ask process? (I know my spelling is atrocious).

  22. Neal says:

    Suggestion for the rating agencies–take the historic 5 or 10 year rate of default for the particular bond type and subtract it from 100. Ratings would be 97.59, 95.2, etc., etc.

    If there isn’t a 10 year track record for the bond type, it should be clearly stated.

    Too simple? Too clear?

  23. Strasser says:

    Barry,

    “I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. . .”

    I think I just did. :(

    Brilliantly hilarious.

  24. PureGuesswork says:

    Barry,
    Chill, dude.

  25. DC says:

    Can the rest of the world join US Class Actions? Because they are damn well entitled to.

  26. cinefoz says:

    Re your suggested disclosure …..

    Things I wish I wrote. A plus plus plus.

  27. Francois says:

    “AND NOW THE SOLUTION PROPOSED BY THOSE SELF SAME RATING AGENCIES IS TO PUT A WARNING LABEL ON THEIR RATINGS?

    Are you shitting me? Words fail me . . .”

    They are shitting all of us and words won’t fail me.

    Reading Calculated Risk and Naked Capitalism blogs, along with this one, one thing is plain obvious: Not only are the rating agencies shitting the personal, but they’re pushing the conceit to the point of repeatedly stalling a more than obviously needed downgrade of the monoline insurers.

    After fucking up big time with CDOs RMBS and all that crap, they just don’t want to be blamed to publicly acknowledge what is known to everyone: monolines are toasted and pain will be severe.

    Maybe it is because some people could get really mad. (Mommy! Why are they calling me names? Boo hoo hoo! Mommyyyyyyyy!)

    When was the last time credit rating gave a break to ordinary people? My point exactly! Never happened, isn’t and won’t happen anytime soon.

    But the financiers and financials? Not a problem dude! You are too important to suffer troubles and inconveniences. The working stiff lives in the home of the slaves, land of the fee while the financials lives in the home of the braves land of the free.

    So…are they shitting you Barry?

    You betcha! They are shitting all of us, and will do so until Papa Regulator (not the dangerously dimwitted apostles of the fuckwadism we got now) cracks the whip.

    Waterboarding the entire staff is too soft: I suggest a lockdown in their offices with diminishing rations of food and increased restrictions to basic amenities (no phones, TV, IM cell phones allowed, of course) until written reports spelling out the truth, the whole truth, nothing but the truth are signed from the CEO top down to the anal-ysts.

  28. Francois says:

    Forgot to mention: After the “reports” are signed, publication, tar and feathers in Prime Time on the networks and voila! a NYC parade with rotten eggs distribution to the crowd with 10 grands to the best pitch, the target being the tarred and feathered, of course!

    GRRRRRR!

  29. Paul in NYC says:

    The Floy Norris blog entry and comments were pretty good reading on this. I highly recommend:
    http://norris.blogs.nytimes.com/2008/02/04/better-late/

  30. Greg0658 says:

    for Justin

    Bush spends to ensure years of interest payback to the financial industry.
    Bush shocks to ensure oil prices will payback to his friends.
    Bush wars to ensure a funded and current military.
    Bush vetos to put surfs in a place to provide laborers to the system.

    America spends to fund Wall Streets existance.
    America spends to commute to work.
    America spends to fund the industry of conflict.
    America spends playing the game.

    Hey masses – weather patterns, infrastructure upgrades, living space and turf wars – these threats are mounting like a tsunami.

    I wish a base system existed to provide a human being with housing, utilities, education, transportation and food. That way the system must woo you with rewards for a better homes and gardens existance.

    I am not asking for a system that rewards zero labor activity. A good base system would not allow food, energy, materials glutony – but would dangle the better existance and not force you to sell your soul.

    IMHO that is a path to PEACE. A FUN path – if we’re not fighting out the path to survival.

    I know I’m a dreamer, thats one of my jobs, and I’m darn proud of it.

    ps – proofing this post, I’m thinking the line in the sand between Republican and Democratic ideals are in these words, ie: How to Care for Me with Them

  31. Don says:

    “If these loans bang up fannie mae like they banged up countrywide, who holds the bag?”

    But of course, Chris, we, the taxpayer, do.

    No worry though, funding a loan through what amounts to an arm of government is just another way of lending money to yourself, or if you like, subsidising McMansion purchases. We can always just not pay ourselves back.

    But it would really be better if we could get some bloated-w/- cash sovereign wealth fund to lend us the money to prop up our McMansion market. They would likely not want a McMansion, so we’d be able to pick it up on the cheap after default.

  32. sk says:

    Tell it like it is, BR. Now if we can sic the SEC on them – on pain of Congress getting on the SEC’s back, we might put an end to their thieving ways.

    Did you catch the tale of how they pushed the muni bond insurers away from insuring just munis towards CDO insurance – they wanted revenue stream diversification to preserve the triple-A rating. I heard this on CNBC – can’t find a link to it though.

    -K

  33. Nikhil says:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aanhAYt9dT88

    Moody’s in a letter today asked investors for comments on five options it is reviewing to improve ratings including a numerical scale and a designation of “.sf” to differentiate a structured finance ranking from a corporate credit grade.

    Here are my two suggestions:

    .BS – Bull/Brokerage/Bank S&*X
    .WS – Wall S*&%

  34. bk says:

    DC – actually, alot of class actions are now being filed oversees. Their plaintiffs’ bars haven’t been as eviscerated as ours. Most class actions don’t help the plaintiffs that much, but in this instance I’m feeling angry enough just to want to hurt the defendants.

  35. bk says:

    DC – actually, alot of class actions are now being filed oversees. Their plaintiffs’ bars haven’t been as eviscerated as ours. Most class actions don’t help the plaintiffs that much, but in this instance I’m feeling angry enough just to want to hurt the defendants.

  36. bk says:

    DC – actually, alot of class actions are now being filed oversees. Their plaintiffs’ bars haven’t been as eviscerated as ours. Most class actions don’t help the plaintiffs that much, but in this instance I’m feeling angry enough just to want to hurt the defendants.

  37. Justin says:

    Greg0658, I have actually thought along the lines of – transportation, housing, food, for everyone. A good base living standard. I think the citizens of Norway, Sweden, etc…come close. But in the end 50%, wouldn’t mind moving to the U.S. for a more so to speak “higher reward on your time and effort exsistance.” At least that what several told me when I visited Sweden two years ago. So I don’t really know…is it possible to provide a higher base living standard i.e. guns verse butter economic argument? My guess is that there are people that aren’t as aggressive or intelligent as others, so won’t put in the extra effort that would be necessary. Possibly because they don’t really demand a richer life. Or their riches are perceived as being obtained through other means – spiritual, social, etc…

  38. Monzie says:

    At Last. I now understand what this big mess is! Great explanation wrapped up in one succinct, hilarious paragraph.

  39. sageofwetmore says:

    You would come nearer to having a valid point if you could show that the agencies had actual knowledge of the fraud and duplicity that went into the transactions in question, or that they made affirmative representations to the public that they had independently investigated the legitimacy of these transactions.

  40. ZackAttack says:

    Looks like MBI just did a $750m dilution afterhours. Naturally, stock up 11+%.

    I am guessing this really means they found no bagholders.

  41. Just4Laughs says:

    Hey Barry,

    How about locking behind bars all those criminally involved in this scam? I got to warn you that you will need a lot of handcuffs since most of the Congress, the FED and much of the current administration have a lot of explaining to do .

  42. tom a taxpayer says:

    This is Moody’s red herring to divert attention from their culpability in the fleecing of investors. Moody’s is trying to divert attention from its employees’ intentional actions (gaming the system) to the “system”.

    Moody’s day(s) of reckoning is coming. Class action lawsuits. State Attorney Generals. Trial by Congress. FBI. Prosecutions. Lastly, when the pension funds fess up and make public their losses, there will be the wrath of pensioners.

  43. Bottom line: Those of us in the “Land of the Fee” need to be kind to one another as we all go bankrupt. No fighting.

    Until that day I strongly suggest the hoarding of canned goods. LOTS of canned goods. And BIG bags of rice and beans. Most canned and dry foodstuffs are good until 2010. Heck, you might even be able to use food in lieu of cash soon. Just imagine the ROI . . .