Thursday, October 23, 2008

Revealing Testimony at the Hearing of Credit Rating Agencies.

Regular readers of this blog would remember my post back in July of this year about declining standards including computer programming errors at Credit Rating Agencies.(these would be moody’s, S&P, Fitch etc).
You can see that earlier post here

Yesterday, top executives from Fitch Ratings, Moody’s and S&P were grilled by the House Committee on Oversight and Government Reform. SEC findings from an examination of records at credit rating agencies, that was conducted earlier this year was brought to light once again.

A few highlights and memorable quotes:
1. An email written by an employee of one credit rating agency wrote that the ratings don’t capture half the risk of the deal and even the deal “was structured by cows, we would rate it.”

2. Another report indicated that executives were quoted as saying that “….hopefully we will be retired when this house of cards collapses.”

3. In a presentation made to the his board of directors a year ago, CEO Raymond McDaniel warned that his employees sometimes "drink the Kool Aid" and gave in to pressure for high ratings, even as the weaknesses of the mortgage-backed securities were becoming apparent.

4. One of the participants at the hearing also felt that issuers of investment instruments awarded credit rating contracts to agencies that were willing to give them favorable ratings.

In case you missed this very informative, revealing and not to mention entertaining (!) exchange see it here

BTW, in the testimony of Mr.Alan Greenspan (he is testifying before the same committee this morning) "....unrealistically positive designation (of financial products backed by sub prime mortgages) by credit rating agencies was the core" of the current international economic problem.

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