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
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 . . .
Moody’s Weighs Warning Labels For Its Rating
WSJ, February 5, 2008; Page C1
One of the themes we have been hearing of late is that stocks, 10% off of their all time highs, are fully reflecting a recession.
That statement turns out to be, um, a tad less than accurate, as was shown by the most recent ISM non-manufacturing Index. Headlines such as Services Data Blindsides Market reveal how little the market actually had priced in even a mild recession, much less a deeper and longer one.
The ISM’s non-manufacturing
index reflects almost 90% of the economy, according to Bloomberg. Consensus expectations of 53% were dashed, as the index plummeted to ~41.0%. to the lowest level since October 2001. If we exclude 9/11, this was the weakest reading since the data began in 1997.
In response, all 10 industry groups in the S&P 500 declined, and the Dow dropped 220 points.
Across the board, the data released was surprisingly weak:
Business Activity Index at 41.9% (consistent with a recession historically)
New Orders Index at 43.5% (fell 10 pts)
Employment Index at 43.9% (An 8 point fall, matching the lowest on record).
Prices Paid remained elevated at 70.7
This is particularly surprising, as we recently learned from the WSJ OpEd pages that The U.S. Economy Is Fine (Really). I haven’t figured out why those pages insist on denying reality, but its their option to live in an alternative universe (Iraq has WMDs, economy is great, etc.)
There are lots of things that investors believe which I find perplexing. The Superbowl indicator is one, but the oddest to me is the so-called Fed Model, also known as the IBES Valuation Model. It is not that the Fed model is so terribly wrong — it has been both right and wrong over the…Read More