A quick reminder of the extent of corruption at the ratings agencies: They were well aware of the fraud that was going on, they just elected to ignore it.

Recall this 2010 NYT article:

“In 2004, well before the risks embedded in Wall Street’s bets on subprime mortgages became widely known, employees at Standard & Poor’s, the credit rating agency, were feeling pressure to expand the business.

One employee warned in internal e-mail that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis.

We are meeting with your group this week to discuss adjusting criteria for rating C.D.O.s of real estate assets this week because of the ongoing threat of losing deals,” the e-mail said. “Lose the C.D.O. and lose the base business — a self reinforcing loop.

In June 2005, an S.& P. employee warned that tampering “with criteria to ‘get the deal’ is putting the entire S.& P. franchise at risk — it’s a bad idea.” A Senate panel will release 550 pages of exhibits on Friday — including these and other internal messages — at a hearing scrutinizing the role S.& P. and the ratings agency Moody’s Investors Service played in the 2008 financial crisis. The panel, the Permanent Subcommittee on Investigations, released excerpts of the messages Thursday.

Understand the litigation against Standard & Poors — and eventually Moody’s and Fitcvh Ratings — is not about “Opinion” — its about knowing, willful fraud.

 

 

Source:
Documents Show Internal Qualms at Rating Agencies
SEWELL CHAN
NYT, April 22, 2010
http://www.nytimes.com/2010/04/23/business/23ratings.html

Category: Analysts, Bailouts, Legal, Really, really bad calls

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.

10 Responses to “Moody’s, S&P Knew of Ratings Fraud”

  1. Petey Wheatstraw says:

    It was more than willful fraud — it was an organized criminal conspiracy to loot the financial system for all it was worth. The conspirators included the top management teams of banking, finance, and government, and spanned at least two Chairmen of the Fed, two Secretaries of the Treasury, two Presidents of the US, The SEC, All of the Ratings agencies, and most of the people charged with law enforcement and regulation.

    Honestly, BR, is there ANY plausible explanation outside of willful criminality on the parts of everyone involved?

  2. david_12321 says:

    And yet no one has gone to jail. I wonder what Martha thinks of how these guys get away with the fraud (and she did not). Is it still not too late to fill the prisons with wall street pundits, ceo’s, cfo’s, brokers, fund managers and analysts? (And the lawyers and the government officials for not enforcing the law).

  3. gordo365 says:

    BR thank you for your focus on this story. We need a solid foundation of rule of law to survive.

  4. Moss says:

    Of course they lied. Now it is up to the corrupt corporate lawyers to attempt to discredit the employees. I hope they get a bunch of whistle blowers to come forward. It will be up to the people at the firm with some integrity to whittle away at the corporate defense.

  5. AnnaLee says:

    Petey Wheatstraw Says: “it was an organized criminal conspiracy to loot the financial system ”

    At the time it happened it did seem more like a movie about organized crime (the mob) than anything else. Um, CDS – a protection racket.

  6. GeorgeBurnsWasRight says:

    I hope this eventually results in a court finding that a crime was committed and there must be jail time for some high-level company officers, rather than just the usual fines which sound to the public like a lot of money but aren’t enough to deter the guilty companies from committing fraud again.

    The cynic in me says that a lot of high-priced lawyers for the ratings agencies will keep this from going to trial in exchange for what has become the normal practices, a cash settlement with no admission of guilt. Or, the high-priced lawyers will succeed in drawing out the trial and submitting so much testimony that the jury doesn’t reach a guilty verdict.

    Finally, I’d love facts to be more powerful than opinion. Lately it seems that opinion has become more powerful than facts for a large portion of the American public.

  7. Greg0658 says:

    financial weapons of mass destruction
    if you have the means – get your corporation/family a drone – before your shutout by law
    quick
    collateral damage ? this is war man – eat or be eaten – what’ll it be boy

    before submit – kidding aka peacenik …

    AND no-one answered this:
    http://www.ritholtz.com/blog/2012/04/jim-grant-on-fed-errors
    “if my personal reservoir of future payments were to go away ie: SSI and my pension (method doesn’t matter) is that a boom or bust to TBP economy (in long or short term)”

    meaning > a laborer stashed for no reason .. actually imo seeded his own job loss via cheap productions abroad … the WS desire of increased demand international corporate captures and that illustrious trickle down for homeland (what homeland)

    ps – the video link is gone – unless the server robots are on break – or lost the self location and are now searching the Wayback Machine to comply

  8. RW says:

    What is interesting is that, to date, I am aware of no evidence that anyone from the securitizers and ratings firms on down apparently ever looked at an actual loan file much less took a random sample; i.e., the real collusion appears to be a more or less tacit agreement not to look ‘lest it become apparent that a big hunk of the underlying securities were Alt-A and Subprime NINJA loans virtually guaranteed to default.

    Stated another way the prospectus of most of these CDO’s was probably bullshit: very detailed and plausibly deniable bullshit but bullshit none-the-less.

    If it was legal then that is a scandal because modern commerce depends upon trust, in contract and collateral alike; e.g., the TED spread leaped to its colossal, commerce freezing heights during the crisis because absolutely no one trusted any counterparty’s ability to cover.

    Adherence to a strict principle of “caveat emptor” in such a system as if we were still living in a simple barter economy would, if nothing else, slow global transfer and transport to such a crawl the world would probably starve; a trader would practically be obliged to conduct full audit of the counterparty for every transaction.

    NB: As it stands a government is basically guaranteeing bond for trades these days but somehow I doubt that approaches the ideal naive libertarians appear to desire.

  9. ToNYC says:

    Community lies
    always seem
    like a surprise.