Closing the credit rating barn door after the horse has left

[c1ue]

http://www.nytimes.com/2008/04/27/ma...l?pagewanted=1

Poring over the data, Moody’s discovered that the size of people’s first mortgages was no longer a good predictor of whether they would default; rather, it was the size of their first and second loans — that is, their total debt — combined. This was rather intuitive; Moody’s simply hadn’t reckoned on it. Similarly, credit scores, long a mainstay of its analyses, had not proved to be a “strong predictor” of defaults this time. Translation: even people with good credit scores were defaulting.

Uh, yeah, real intuitive. That people with low to zero equity have a higher risk of defaulting? What a bunch of morons - or more likely a convenient stupidity.

Then the credit score thing: Yeah, I'm sure Moody's was totally unaware of credit rating improvement corporations. Surely no one there ever used the Internet, read email, or saw/heard advertisements on how to improve your credit score.

:mad:

[GRG55]

Re: Closing the credit rating barn door after the horse has left

http://www.nytimes.com/2008/04/27/ma...l?pagewanted=1



Uh, yeah, real intuitive. That people with low to zero equity have a higher risk of defaulting? What a bunch of morons - or more likely a convenient stupidity.

Then the credit score thing: Yeah, I'm sure Moody's was totally unaware of credit rating improvement corporations. Surely no one there ever used the Internet, read email, or saw/heard advertisements on how to improve your credit score.

:mad:

An entertaining article in the NYT...

The Reckoning
Debt Watchdogs: Tamed or Caught Napping?

By GRETCHEN MORGENSON
Published: December 6, 2008
The housing mania was in full swing in 2005 when analysts at Moody’s Investors Service, the nation’s oldest and most prestigious credit-rating agency, were pressured to go back to the drawing board.

Moody’s, which judges the quality of debt that corporations and banks issue to raise money, had just graded a pool of securities underwritten by Countrywide Financial, the nation’s largest mortgage lender. But Countrywide complained that the assessment was too tough.

The next day, Moody’s changed its rating, even though no new and significant information had come to light, according to two people briefed on the change who requested anonymity to preserve their professional relationships...

...“Moody’s credit ratings play an important but limited role in the financial markets — to offer reasoned, independent, forward-looking opinions about relative credit risk, based on rigorous analysis and published methodologies,” Mr. Mirenda said. The company denies that it went easy on ratings to generate income.

That the credit-rating agencies missed immense problems in the mortgage-related securities they blessed is undeniable. Moody’s declined to say how many classes of the securities it has downgraded. But the number is in the thousands and the original value in the hundreds of billions of dollars.

When Moody’s began lowering the ratings of a wave of debt in July 2007, many investors were incredulous.

“If you can’t figure out the loss ahead of the fact, what’s the use of using your ratings?” asked an executive with Fortis Investments, a money management firm, in a July 2007 e-mail message to Moody’s. “You have legitimized these things, leading people into dangerous risk.”...

[Shakespear]

Re: Closing the credit rating barn door after the horse has left

convenient stupidity

Exactly

I love the memes used here,

Debt Watchdogs: Tamed or Caught Napping?

Gives you that warm fuzzy feeling that it is all a Disney cartoon episode and there is nothing to worry about. It will take care of itself :-)

Better title

Rating Firms : Criminals or Swindlers

[c1ue]

Re: Closing the credit rating barn door after the horse has left

The deliberate loophole in 'free market' economics is that if everything is governed by the free market, so too do the capitalists convert the regulators.

After all, if nothing but self interest governs the marketplace, why then must the regulators act altruistically?

The 'capture' of the SEC and ratings agencies is a repeat of what has happened throughout history.