“We obviously cannot ask payment for rating a bond. To do so would attach a price to the process, and we could not escape the charge, which would undoubtedly come, that our ratings are for sale.”

— Edmund Vogelius, a Moody’s vice president, explained the company’s business model in a 1957 article in The Christian Science Monitor

“These errors make us look either incompetent at credit analysis or like we sold our soul to the devil for revenue, or a little bit of both.”

— A Moody’s managing director responding anonymously to an internal management survey, September 2007.

>

The Sunday NYT has a big Gretchen Morgenson column on Moody’s, one of the three incompetent and corrupt ratings agencies that helped foster the current credit crisis.

A combination of factors led the ratings agencies to their current state of criminal embarrassment. Once they went public, the usual short term focus on profits began driving what was once an objective decision making process regarding rating bonds.

Once again, we see misplaced incentives shift the focus of a publicly traded firm: From safe, low-margin business of rating bonds to the more lucrative business of covering structured financial products and derivatives.

Thomas J. McGuire, a former director of corporate development at the company who left in 1996, was quote din the Times article, saying: “Moody’s was like a good watchdog that had regarded the financial markets as its turf and barked and growled when anybody it didn’t know came near it. But in the ’90s, that watchdog got muzzled and gelded. It was told to turn into a lapdog.”

This was a huge shift in where revenue came from. Formerly, it was the investors who bought Moody’s research and analysis. More recently, the ratings agencies worked with the underwriters. It was a bad case of pay-for-play payola, where triple AAA ratings weren’t forthcoming, the weasely bankers threatened to take their business to one of the other ratings firms.

And of course, the SEC, enraptured in their radical free-market, self-regulating, delusions, were nowhere to be found. The SEC is formerly in charge of supervising the agencies, but it was yet another example of nonfeasance: the intentional failure to perform a required legal duty or obligation.

Here’s an excerpt:

Since the subprime mortgage troubles exploded into a full-blown financial crisis last year, the three top credit-rating agencies — Moody’s, Standard & Poor’s and Fitch Ratings — have faced a firestorm of criticism about whether their rosy ratings of mortgage securities generated billions of dollars in losses to investors who relied on them.

The agencies are supposed to help investors evaluate the risk of what they are buying. But some former employees and many investors say the agencies, which were paid far more to rate complicated mortgage-related securities than to assess more traditional debt, either underestimated the risk of mortgage debt or simply overlooked its danger so they could rake in large profits during the housing boom.

A Moody’s spokesman, Anthony Mirenda, said the company would not change ratings without substantive reasons. “As a matter of policy, Moody’s is obligated to reconvene a rating committee if there is new information put forth by an issuer that could have a material impact on a security’s creditworthiness,” he said, “and our policies prohibit changes to ratings for anything other than credit considerations.”

He added that “Moody’s knows of no instances in which a reconvened rating committee resulted in improper changes to ratings on Countrywide securities.”

What a bunch of clowns.

Since I cannot put this in the book, I might as well toss it out here: All of these motherfuckers need to be thrown in prison, where they will be sodomized on a daily basis for the rest of their lives.

>

Previously:
Ratings Agencies 2007 = Equity Analysts 2000 ? (August 2007)

http://www.ritholtz.com/blog/2007/08/ratings-agencies-2007-equity-analysts-2000/

Source:
Debt Watchdogs: Tamed or Caught Napping?
GRETCHEN MORGENSON
Published: December 6, 2008

http://www.nytimes.com/2008/12/07/business/07rating.html

See Also:
Overrated
The subprime-mortgage meltdown could— finally—end the credit-ratings racket.
Jesse Eisinger
Portfolio, August 14, 2007 (September 2007 Print Issue)

http://www.portfolio.com/news-markets/national-news/portfolio/2007/08/13/Moody-Ratings-Fiasco

Wall Street often shelved damaging subprime reports
Patrick Rucker
Reuters, July 27, 2007

http://www.iht.com/articles/2007/08/01/bloomberg/sub.php

How Rating Firms’ Calls Fueled Subprime Mess
Benign View of Loans Helped Create Bonds, Led to More Lending
AARON LUCCHETTI and SERENA NG
WSJ, August 15, 2007; Page A1

http://online.wsj.com/article/SB118714461352698015.html

Category: Bailouts, Credit, Fixed Income/Interest Rates, Real Estate

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.

56 Responses to “Blaming Moody’s”

  1. Patrick Neid says:

    Easy big guy.

    “the wheels of justice grind slowly, but exceedingly fine.”

    If there are perps they will do the walk.

  2. Yeah, i guess your right — justice is always served.

    Eventually, these guys will be arrested — probably for burglarizing a sporting goods memorabilia store. Then they will get whats coming to them…

  3. bonghiteric says:

    P. Neid wrote:

    “Easy big guy.”

    There’s nothing wrong with expressing profanity and outrage on this topic.

    “the wheels of justice grind slowly, but exceedingly fine.”

    WTF are you talking about? That doesn’t make it acceptable.

    “If there are perps they will do the walk.”

    Something about the last decade leads me not to believe your rectitude.

  4. dead hobo says:

    cfischer, manwich:

    Yesterday you replied to a recent posting of mine. Pardon my bluntness, but you sound like a pair of ‘C’ students who blend in by dittoing the current mantras of the day.

    Naked short sellers aren’t the same as ordinary short sellers. Enough of them were criminals who never intended repay borrowed stocks. Stories of open interest that exceeded available shares were common. The entire country and world was victimized by these thieves. Either you two are pissed because you can’t steal any longer or you are both clueless.

    Daily posts about ‘oil thieves’ were marginalized daily. I’m gald to hear you were a part of the secret society that really knew prices were in a bubble.

    I’m optimistic because the gland that most people have that enables them to fall for the daily story is missing in me. Yes, things are bad. No, it’s not terminal. Low commodity prices will help a lot as they slowly permeate the economy.

    Anecdotal stories about business being bad because of unavailable credit abound. Fix this and fix the world.

    BTW, BR is starting to sound nearly as ill tempered as my disreputable cousin. Good Job.

  5. The superior man understands what is right; the inferior man understands what will sell.

    -Confucius

  6. jc says:

    A double whipped souffle of deception; we had RE appraisers giving the appraisal value needed to make the deal “work” (sometimes with a couple straw buyers to provide nice comps), then these mortgages are bundled and rubber stamped by the ratings agencies. So we end up with trillions of dollars of essentially counterfeit financial instruments. Gresham’s law still holds and very few are willing to buy the swill and go pearl diving so Paulson picks the financial survivors in a series of secretive weekend deals.

    I thought the Bush administration would be remembered for the wasteful, unnecessary and immoral Iraq war but a worldwide depression fostered by it’s devil-may-care attitude towards regulation trumps that easily.

  7. rob says:

    I fall in the camp with Barry! Forget “slow and deliberate” justice! If these SOB’s were publicly disemboweled immediately and then sued, then this type of crap wouldn’t happen again. The “slow and deliberate” will just manifest itself into complacency again in the near future! Same damn thing is being repeated by the Fed right now so in three years lets see what S&P, Moody, etc assign AAA to. This will be about the same time that your freaking warm and fuzzy, things always work out in the end, justice will be coming up also. Good luck with that! Personally IMO it is time for the March of the Machetes! Sorry I went from laughing at Barry’s comment to pissed on the last sentence! Time for a breakfast bowl of valium!

  8. Moss says:

    We all need to be outraged and insist that these criminals get put in jail.
    Who has paid the price for this BS? Shareholders?
    This behavior must be a crime under some law.
    RICO? SOX?
    Where are the DA’s?
    Do we need to get Spitzer back?

  9. Moss: LSS: it’s why Spitzer was outed, and Frank is Chair of the House ‘Finance’ Cmte.

    This behavior must be a crime under some law.
    RICO? SOX?

    certainly RICO, though, funny, what ever happened to SOX/SarBox? (besides deliasting hundreds of smaller firms and increasing the costs to access public capital)

    And, BR, worry, not, about letting the juices flow, some things, truly, are Outrageous.

    These ‘Rating Agancies’ make the UAW look like Choir Boys..

  10. jmborchers says:

    Why can’t you put it in the book? Is Moody’s rating your book?

    ~~~

    BR: Its an editorial choice — I don’t want to be come too shrill!

  11. danm says:

    I fall in the camp with Barry! Forget “slow and deliberate” justice! If these SOB’s were publicly disemboweled immediately and then sued, then this type of crap wouldn’t happen again
    —————————–

    When will people get it? Since the beginning of times threats of violence have never worked to stop the true criminal mind. The criminal mind is impulsive and can not even think it will get caught or simply can’t see mid to long term.

    You can get them off the streets to have less criminal minds roaming about but it won’t stop the new up and coming to act out.

    I’m sorry but all this crap has been building up for the last 2 decades, in clear open view for everyone to see. Nobody did a thing but consume. I tried but I was ridiculed by the leaders and by the consumers. It was a moving train.

    America is good for finding scapegoats. Just clean up for once, will you?

  12. Patrick Neid says:

    I feel like the guy at Walmart.

  13. KidDynamite says:

    I’ve been thinking about who is ultimately to blame in this whole debacle… so many people f’d up, but none of them were really as criminal as the ratings agencies – most were just stupid, greedy, and ignorant of risk. I agree that the ratings agencies are really to blame because a reasonable investor cannot be expected to duplicate their work and come up with their own conclusion.

    now, I contrast this with EQUITY research, where it’s been commonly accepted for many years that ratings (buy/hold/sell) are basically useless… why did we disregard equity ratings but not debt ratings?

  14. larster says:

    One of the untold f—ups of the Bush administration was the shifting of massive amounts of FBI/Justice Dept manpower to the “war on terror”. There was no staffing up, so the available agents’investigators tasked with white collar crime/fraud were cut by probably one-half. The sad truth IMO is that there is no one to investigate the massive fraud involved in rating these securitzations. Now add to the mix the bankruptcies, companies being swallowed up by acquirers, and a change in administrations and you have a situation where it will be almost impossible to put together an investigation. If we haven’t seen the perp walk, I do not think we will see it.

  15. danm says:

    I agree that the ratings agencies are really to blame because a reasonable investor cannot be expected to duplicate their work and come up with their own conclusion.
    ————–
    BS. As a PM, I knew that those ratings were crap. I knew they had a conflict of interest.

    Any PM with a head on his/her shoulders new the whole thing was a farce.

    The problem is that finance is the most profitable industry in our economy. There was too much money on the table to protest. Finance people were too busy lining their pockets and pretending they did not see the wrongdoing.

  16. danm says:

    And if other PMs did not see the fraud, they are incompetent and should not be practising.

  17. awilensky says:

    CNN had one of the top bond ratings guys from Moody’s on a while ago – he refused to cop to the cop out. WHere was the SEC? The AG? They were selling ratings, my G-d!!!!

    They must all die. Help me citizens, help me hunt these cocksuckers down and beat them with a pipe until they piss blood for a year. It’s better justice than than jail/

  18. danm says:

    BTW, I got out of the business a couple of years ago because I just did not want to participate in this farce any longer.

    The day I spent 1/2 an hour looking for a corporate that yielded 20 beeps more than a treasury I called it quits.

    Pricing for risk was non-existent. Any good PM could have told you that.

  19. constantnormal says:

    Ummm … while I support the tone of indignant outrage, and it certainly walks and talks like a duck, is there in fact any crime that has been committed here by the ratings agencies selling their opinions? Have they falsified any quantitative data, or is this simply the result of a malleable opinion, subject to the desires of whomever was paying for it?

    And if, in fact, there is an actual bona fide crime here, what about the bazillions of clueless/bought brokerage analysts recommendations, especially when the firm may be an underwriter of securities of the company being recommended?

    Or for that matter, the mutual fund companies that carefully choose the date their 10-yr “performance” is measured from?

    Once you get into looking closely at these sort of things, it seems to me that a better position is caveat emptor, and doing one’s own due diligence. Abrogating one’s own judgement to the word of others always carries its own risk, and one should ALWAYS ask oneself what the person/agency that is offering up an opinion on anything involving money is getting out of it.

    It’s OK to note ratings firms “analysis”, and brokerage/mutual fund analyst recommendations, but if you accept the “answer” without understanding the process and examining the data yourself, then you are yourself assuming some portion of the responsibility for losses incurred.

    This happens regularly in all sort of other arenas in the economy — once upon a time, I worked for a company that sold large scale computer hardware, and it was commonly known that if you did not sponsor the “analyst groups” conferences, there would be repercussions regarding your firm in the subsequent press from those “analysts”. You also get the same thing with record companies, and movie studios, and the people who review their products. I wonder how book reviewers are compensated, and whether their compensation depends in any way on the sales of the books they review?

    So why should anyone expect the financial industry to be any different?

    In the end, the responsibility for investment decisions lies with the investor. I recently got out of some local school long-term muni bonds that were rated AAA, because in the time between when I bought them and the time I sold them, the state enacted sweeping property tax legislation that capped property taxes at 1% of market valuations, cutting my own property tax bill roughly in half. The funding to repay the muni bonds comes entirely from property tax revenue. I have grave doubts that the money will be there to repay the bonds when they come due, given this cap on top of a declining real estate market. Why should I wait for a newly-vigilant ratings agency to come to their senses?

    Caveat emptor — it’s the only rule that works.

    All that aside, I too favor keel-hauling some of these folks, preferably starting at the top of the org chart. I like a good show as much as the next person.

    Hang ‘em high!

  20. gbbalto says:

    I feel much more for the amateur investor that for the “pros” that were sucked in and passed bad advice to the folks who tructed them and were paying for their advice.

    OTOH, individual investors needs to put in an amount of time commensurate with the risks to their financial futures to find out where the rot is. If you’re counting on living 20-30 years on your retirement nest egg, it’s worth many hours of research to try to get it right.

    I stopped paying any attention to the big rating agencies once I realized that they were being paid by the ratees. I know of one rating service that accepts money only from the individual inverstor – the one run now by TheStreet.com (formerly by Martin Weiss. Are there any others?

    BTW, please do not joke about prison rape. The fact that so many people find it funny instead of being outraged is a major factor in its being allowed to go on and on and on…

  21. rww says:

    In hindsight, at least, once we set out on the road to finance-based “prosperity”, all sorts of stuff was inevitable as the end approached. Everything seemed to ratchet-up in craziness and shrillness.
    Everything was for sale. Home-runs, double-plays. It was all foreseeable, wasn’t it? We can blame the rating agencies and they deserve it, but the whole world was playing the same game — sell everything, borrow to buy it, throw it away or put it in “self-storage”, and start all over again.

    So we can blame the raters and the securitizers, and I certainly do, but they were extending a game that everyone world-wide wanted extended. Shouldn’t we really try to identify and disembowel the people who got the game going in the first place?

  22. Compendium, from above, Q, at the end:

    BTW, please do not joke about prison rape. The fact that so many people find it funny instead of being outraged is a major factor in its being allowed to go on and on and on…

    yes, that is its own sickness..
    ~~

    This happens regularly in all sort of other arenas in the economy — once upon a time, I worked for a company that sold large scale computer hardware, and it was commonly known that if you did not sponsor the “analyst groups” conferences, there would be repercussions regarding your firm in the subsequent press from those “analysts”. You also get the same thing with record companies, and movie studios, and the people who review their products. I wonder how book reviewers are compensated, and whether their compensation depends in any way on the sales of the books they review?

    So why should anyone expect the financial industry to be any different?
    ~~

    The day I spent 1/2 an hour looking for a corporate that yielded 20 beeps more than a treasury I called it quits.

    Pricing for risk was non-existent. Any good PM could have told you that.
    ~~

    The problem is that finance is the most profitable industry in our economy. There was too much money on the table to protest. Finance people were too busy lining their pockets and pretending they did not see the wrongdoing.
    ~~

    One of the untold f—ups of the Bush administration was the shifting of massive amounts of FBI/Justice Dept manpower to the “war on terror”. There was no staffing up, so the available agents’investigators tasked with white collar crime/fraud were cut by probably one-half. The sad truth IMO is that there is no one to investigate the massive fraud involved in rating these securitzations. Now add to the mix the bankruptcies, companies being swallowed up by acquirers, and a change in administrations and you have a situation where it will be almost impossible to put together an investigation.
    ~~

    contrast this with EQUITY research, where it’s been commonly accepted for many years that ratings (buy/hold/sell) are basically useless… why did we disregard equity ratings but not debt ratings?
    ~~

    all this crap has been building up for the last 2 decades, in clear open view for everyone to see. Nobody did a thing but consume. I tried but I was ridiculed by the leaders and by the consumers. It was a moving train.
    ~~

    The superior man understands what is right; the inferior man understands what will sell.

    -Confucius

    BR,

    isn’t this, the ‘Ratings Game’, still, just another Symptom of the actual Problem?

    who has bets that this type of ‘fantasy Finance’ could have grown, as large as it did, in an Economy predicated upon real Money, instead of illusory Currency?

  23. abbottmd says:

    Barry, this is ridiculous. If it is so obvious that ratings agencies were chumps, then the real idiots are the ones who used the ratings. Blaming the ratings agencies for this is Wall Street’s way of avoiding their own responsibility, and you are helping push that agenda…”So bond ratings weren’t accurate? Who knew?! Gee, we really thought everything was AAA, it wasn’t our fault.”

  24. keenan says:

    BR – I tend to think gbbalto & Mark E Hoffer are correct about the matter of rape.

    The scamsters should be on public display at work doing hard labor in striped outfits in a chain gang, or at least with the ball & shakles, doing something useful. Or perhaps making public appearances in pillories arranged at cites halls or town squares throughout the US.

  25. KidDynamite says:

    @danm: look, i hear your point, and i’m all in favor of caveat emptor, but there are situations where there are financial products designed for retail consumption where the end buyer simply cannot do the credit analysis, but can still be expected to be a buyer of the product… this is very different from guys like Rubin, Paulson (the Hank kind) and Bernanke saying that they couldn’t see it coming: they were the ones who were SUPPOSED to see it coming…

    i’m thinking mostly of muni’s here: i don’t think you can fault me when i buy a Long Island Power Authority bond that’s rated AAA and insured, without having looked at the cash flows of the entity: can you?

    i guess your average high net worth individual shouldn’t really be buying these f’d up tranches of MBS that Moody’s screwed up the ratings on – but then again, why blame Moody’s and not the broker who sold the crap to the high net worth investor?

  26. WebHubbleTelescope says:

    Thanks Barry, good to see this topic getting some publicity. I posted my comments over at TheOilDrum.com
    http://www.theoildrum.com/node/4843#comment-441240

  27. timpe says:

    There is a lot of talk of who is to blame for our current economic situation. And we all know the usual list of culprits. But if you turn the question around, and ask, ‘what one thing could have been different and prevented the whole mess’, then for me, the clear answer is the rating agency actions. Imagine, one of the investments banks takes their wheelbarrow load of sub primes to the agency. The ratings agency say, hmmm, that’s pretty much triple d and we stand by that. How much longer would those sub primes and alt A’s have lasted in the world? The investment banks would have closed the market on them, and the whole mess averted.

    It seems to me the way this stuff should be rated would be by the kind of people that rate mpg for cars, a government agency. They have no skin in the deal, they have nothing to lose or gain on over or under rating. This is a perfect example of where a little government regulation/intervention can do it’s part to allow the power of capitalism to do its thing. The government rates and then the market prices. If this principle were carried out all throughout the financial system you could pretty much through out a great deal of the other regulations.

  28. leftback says:

    @ Patrick said:

    Easy big guy.
    “the wheels of justice grind slowly, but exceedingly fine.”
    If there are perps they will do the walk.

    I tend to agree, although the history of white collar crime does tend to suggest that many of these crooks are actually going to walk. In this case, the daily performance of wrong-doing pervaded an entire industry, as did the knowledge that malfeasance was occurring.

    How does one deal with an entire culture of criminality? Did every German citizen know it was wrong to herd people into railroad trucks in 1944? Of course – and this led to an entire generation of self-examination and recrimination in post-war Germany. Don’t be surprised if we have a social reversal here where anything associated with finance will be met with revulsion. I would think that show trials are not only desirable but compulsory.

    Let the wheels begin to grind.

  29. DL says:

    Not to worry. The SEC is right on it:

    SEC OKs conflict-of-interest credit rating agency rules

    http://www.marketwatch.com/news/story/story.aspx?guid=%7B1806a7fc-b38b-469d-ac4a-d0fbd352b3b5%7D

  30. leftback says:

    They had better be quick because the fraud is still going on. People are being sold munis and corporates right now as though they were buying gold bars in Fort Knox.

    What’s that? Bernanke already sold the gold in Fort Knox to buy long bonds?

  31. rob says:

    @danm “When will people get it? Since the beginning of times threats of violence have never worked to stop the true criminal mind. The criminal mind is impulsive and can not even think it will get caught or simply can’t see mid to long term.”
    ———————————————–
    There’s a fallacy with your arguement. First off, who even said these guys HAD criminal minds! I certainly never did. I believe it is more of an issue of laziness and incompetence! That is the reason for my harsh tack! In the future, appropriate risk analysis would be accomplished if the lack of it was severely punished NOW. Second, you live in a fantasy world if you think threats of violence don’t shape mental thought. That was the entire basis for the Cold war, terrorism, and just about anything else you want to consider violent. Violence is domination. Like it or not, it is animalistic truth.

  32. rob says:

    Oh, and I left out one more thing… their fiduciary responsibilities! How quick people tend to forget that! If I was a CPA and made recommendations like they have, I’d be sitting in court right now watching the last of my assets being handed to my clients!

  33. rww says:

    Bear, Lehman, Merrill gone and huge losses at banks and IB’s around the world– doesn’t that suggest credulity rather criminality? ie, ignorance rather than guilty knowledge? Not saying one is better than the other.

  34. RW says:

    WRT fiduciary responsibilities, absolutely yes. That’s one reason I disagree with this statement in the article, “…yet another example of nonfeasance: the intentional failure to perform a required legal duty or obligation.”

    That other reason is that when you put intent and legal in the same sentence you’re talking about malfeasance, a crime by definition.

  35. rww, December 7th, 2008 at 12:48 pm

    as you know, the Trees, and the Forest, are two different things..

    with that, remember, appearances are meant to deceive..
    ~~

    “fiduciary responsibilities”– WTF are those?

    more Seriously, this: “WRT fiduciary responsibilities, absolutely yes. That’s one reason I disagree with this statement in the article, “…yet another example of nonfeasance: the intentional failure to perform a required legal duty or obligation.”–RW, above

    That other reason is that when you put intent and legal in the same sentence you’re talking about malfeasance, a crime by definition.”–is, of course, correct and on the right track..

  36. Theodore D. says:

    “We obviously cannot ask payment for rating a bond. To do so would attach a price to the process, and we could not escape the charge, which would undoubtedly come, that our ratings are for sale.”

    — Edmund Vogelius, a Moody’s vice president, explained the company’s business model in a 1957 article in The Christian Science Monitor

    That should have won your quote contest.

  37. Andy Tabbo says:

    my face crap food while watching reality-based TV shows.
    – And finally…. it’s all the ratings agency fault….I got screwd because they slapped AAA ratings on convoluted crappy paper they were paid to rate! It’s not my fault I didn’t do the due diligence to understand the shit I was buying!

    There’s plenty of blame to go around for all parties. We are our own worst enemy with our incessant focus on short term results vs. long term capital creation. Maybe we would be a better economy without a stock market? Could it be that that beast itself, the stock market, is the problem?

    - AT

  38. Theodore D. says:

    Rob – “Oh, and I left out one more thing… their fiduciary responsibilities!”

    But to whom do they owe fiduciary responsibilities? Legally the CEO’s owe fiduciary responsibilities to the shareholders. What they did, at least in the short term, benefited the shareholders so I don’t know how you would prove a breach of fiduciary duties. Plus most of these laws require that you prove scienter anyway, so … how do you go about doing that? I can’t for the life of me see any legal theory to put these people away. Granted I haven’t done much research but at least on its face it doesn’t seem like any blatant violation. Of course you would have to look at it on a case by case basis but this “outrage” just seems frustration against the system.

    * It does seem like we could see some interesting derivative suits coming out of all this though.

  39. Its_Science says:

    It seems to me that the government has two choices: either remove the ratings agencies’ protection as “Nationally Recognized Statistical Rating Organizations” or regulate them more heavily. Their NRSRO status is why investors trust them so much; government trust and capital regulations is what gave their ratings credence. So the government can either maintain a large bureaucracy to double check their work, or it can simply take away their protection and let them try to create value by earning a good reputation, or selling its services to the buy side again. Every claim that BR has made about their incompetence and corruptness is likely true, but it was just a natural outcome of the agencies following their self-interests with the power and protection granted them by the government. I’m not sure why we would want to trust them to be saints.

  40. piniella says:

    All of these motherfuckers need to be thrown in prison, where they will be sodomized on a daily basis for the rest of their lives.

    I COMPLETELY agree! The only question I have is the number of Masters of the Universe who need hard time. My guess is about 3,000.

  41. KidDynamite says:

    it’s SHOCKING to me that so many muni’s are still rated AAA… i think you’d have to be on DRUGS to by NYC muni’s right now – the city is bankrupt.

  42. Greg0658 says:

    constantnormal Says: “In the end, the responsibility for investment decisions lies with the investor”

    only thing there is no way to Not Invest in this system … my time spent and product purchases are for the system … even tho I provide not a penny via the traditional stock and commodity markets …
    Ruby Ridge didnt work

    I / We need a simpler system … but that will mean job losses

  43. Simon says:

    Doesn’t Warren Buffett own a lot of Moodies Shares? I wonder if eventually the compass needle will swing towards him as complicit.

  44. Mannwich says:

    @dead hobo: For the record, I have never shorted individual stocks, so take it easy. I’m not in the naked short sellers camp either. I think they should be stopped and banned but I certainly don’t think they’re the cause of this mess. That’s all I’m saying, so please relax and STFU.

  45. dead hobo says:

    mannwich,

    I never said naked short sellers were responsible for today’s issues.They were more of a symptom. Thieves controlled a lot of everything that led up to today’s troubles. They were only a part of it.

    My serious issue is with the organized crime that cried when their ability to steal was removed, and also with the organized stupidity that considered them to be the last bastion of freedom. Much of this stupidity bleated daily on CNBC for quite a while.

    I recognized this and the oil bubble for what they were. In fact, it appeared amazing that so many people fell for the oil bubble as ‘peak oil’.

    In reality, I believe people need to be told what to think. Even well educated and wealthy ones. The media fills this vacuum and so do people with hot investments for sale.

    Most people appear to be incapable thinking original thoughts or of acting on original conclusions unless their hair is on fire, metaphorically speaking.

  46. danm says:

    rob:

    Technically you’re right. I can’t necessarily say criminal because a lot of what they did was legal!

    BUT I still don’t agree with violence as an answer. I have two kids and I can tell you that positive reinforcement works much better than negative reinforcement. Negative reinforcement basically makes people think they have been humiliated, makes them feel victimized and gives them more reason to not comply in the future. They just get more devious.

    I could make a list of leaders who died violent deaths: Mussolini, Hitler, Stalin, Cesar, Hussein… They knew the odds of what they had coming, yet it did not stop their evil actions. The more pain they caused, the more resolute they became. It just gave them more reason to increase their brutality.

  47. jessica says:

    Barry,
    I agree with you. Please vent here with us. And yes, in the book, it would be shrill. And vulgar. Because something about a book would make it more literal (advocacy of sexual torture as state policy) whereas something about a blog let’s it be what it really is, an expression of emotion.
    I suspect that few of those most responsible will be punished in any way. I think you know that and that is part of your frustration.
    Beyond that, maybe this type of thing is inherent in a finance-centered economy (as opposed to a manufacturing-centered one for example). You quoted Confucius. (Is that quote real?) A Buddhist teacher told me that the reason we won the cold war is that their system was based on jealousy and ours on greed. And greed is a better foundation. Slightly.
    I hope that the recognition spreads not only that finance needs to be regulated for the safety of all of us, but also that large financial players will invariably attempt to game the system.
    More broadly, one cause of all this is the split that happened in the 60s. Many of those who would have pushed for higher ethics or cared about the possible impact on society at large rejected this whole field altogether. (That definitely applies to me.) Right now, I think genuinely responsible bankers could work for the good of society in just the way that a Peace corps volunteer or environmentalist tries to.
    Yet more broadly, the economy needs to shift to a knowledge-centered economy, socially we are not ready, so the economy has stagnated for decades. This stagnation is so thorough and so universal that we do not even see it. One of the symptoms is a lack of adequate outlets for investment. So money flows to games. Which eventually turn ugly.
    Another symptom is that many of the most talented lack adequate outlets for their creative capacities. So they flow to developing more and more elaborate financial games.
    What a waste for all of us.

  48. constantnormal says:

    Interesting, the level of vociferous fervor here … while the mainstream American is largely completely oblivious to this, and a lot more concerned with the jobs or homes they are losing … how will we get them sufficiently connected to what is broken so as to motivate our corrupt legislators in the next round of primaries?

    Maybe things will be so bad by then, with U3 well past 10% and U6 on its way to 20%, and another few million homeowners having been wiped out, that getting the attention of John Q Public will not be a problem …

  49. Mannwich says:

    @dead hobo: I hear you. Don’t disagree. I think we’re on the same page here………think I misunderstood your original post. Mea culpa.

    Again, remain mostly long and hope we have a quick recovery but I think this will be a longer and nastier than we think. That’s all. I’m flexible to change my outlook as the facts change though.

  50. TheGuru says:

    Read Michael Lewis’s article in Conde Nast Portfolio magazine — these ratings chumps NEVER even factored in depreciation of home prices. Totally disregarded a very probable event. They should be fed their gonads.

    http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

  51. philipat says:

    Quick or slow, these SOB’s must be convicted. The SEC (Remember the SEC? Did Cox ever show up at the Office?) must change the rules and in fact should already have done so to make rating (In terms of the transaction between the Ratings Agency and Company being rated) a no fee game. We really can’t allow this to be forgotten over time, and there will certainly be nothing to rate over the next several years. Let’s do our bit to ensure this doesn’t get forgotten about in the process of fixing everything else.

  52. sparrowsfall says:

    Barry, I’m still trying to figure out: what regulation would be smartest for ratings agencies?

    I’d like to say, “can’t take money from issuers,” but I’m not at all certain there’s a feasible alternative business model, especially one that would well serve the public good. And, how do you keep it from applying to anyone who comments (publicly?) on securities? (Or should it?)

    A cigarette-pack type warning on each paid rating would be good, but rather limp wristed.

    Wild-eyed liberal that I am, I still think making them a public agency would be a bad idea, rife with conflicts and unintended consequences.

    Ideas?

  53. timpe says:

    Well, I am no wild eyed liberal but a bleeding heart capitalistic pig. And I recognize, like most market players, that the government plays an absolutely vital role in keeping the wheels of a free market economy going. In fact, there can’t even be a free market pricing mechanism for stocks or anything else without rules, regulations, transparency, standards etc. I know this first hand from living in a third world country where if I were to look at the books of a company I would be absolutely sure that all of it was a complete lie. If I look at the books of an American company, I can get SOME reasonable idea of where it stands.

    The question is never whether we should regulate or not, or even how much regulation. The important question is how to regulate, what kinds of. We don’t need more, we need correct. And that which we already have needs to be enforced. Unfortunately, those enforcers in power now just don’t believe in their jobs (Cox and the naked selling rule which is already on the books). That is all part of a long term ideology that came to power many years ago. But, really, all ideology is suspect and should be treated with great gobs of pragmatism. Give me common sense any day.

    And so, the idea that we can have publicly traded companies whose reasond’etre is to make money and that they be the evaluators of a bond is almost a non starter in my mind. Those who rate bonds or anything cannot have skin in the game – and how is a money making entity ever going to be skin free? It’s just not possible in principle. So why fight it?

    Which leaves the possibility of an association (all bonds pay a fee in the transaction costs that goes to the association) or government agency doing the job. I would much rather trust some bean pushers in the sec (career people, not political appointees) to evaluate a bond, or say that it cannot be evaluated and rated, than anyone who might benefit from rating that bond. Is it perfect? No, of course not. Can there be political pressure? Sure. But there are ways of insulating the political pressure; the further you get from political appointees the less the pressure.

    So, here it is; let the government rate bonds etc, let the market price them. It’s a mostly elegant solution that beats the hell out of tons of regulations telling private companies what and how to rate.

  54. danm says:

    Moody’s would argue that it’s hard to keep good analysts under the old business model: compensation is too low.

    Maybe the key is not looking at CEO compensation vs. that of the lowest paid employees. The answer might simply be making sure there is convergence between the remuneration of our top paid executives and those who regulate them.

  55. Greg0658 says:

    timpe Says: “So, here it is; let the government rate bonds etc, let the market price them.”

    I was thinking yesterday we need 2 government offices for every agency. The Green team and the Yellow team. America loves game therory. Both get the same wage scale. The team that produces better gets more vacation time and a players cup. Hense that years loser team picks up the pace for ego and vacation sake or if deemed inadequate enough would get fired.

  56. Greg0658 says:

    me “for every agency” edit “for some agencies”

    I was just conjuring an image of the Green White House vs. the Yellow White House and the yellow dollar and the green dollar economies.
    :-) beneficial for the world I’m an artist and not a policy maker