Courtesy of Mish.
Pigs at the Trough
The big rating agencies are as corrupt as ever. But don’t blame them. That would be like blaming pigs for feeding at the trough.
Please consider the New York Times article Ratings Agencies Still Coming Up Short, Years After Crisis by Gretchen Morgenson.
The mistakes that led to the 2008 mortgage crisis can’t happen again, right?
Not so fast, particularly if you’re talking about credit ratings agencies like Moody’s Investors Service and Standard & Poor’s. Eight years after these companies were found to have put profits ahead of principle when they assigned high grades to low-quality debt securities, some of the same dubious practices continue to infect their operations. That’s the message in the most recent regulatory report on the companies from the Securities and Exchange Commission.
The credit ratings agencies played an enormous role in generating billions of dollars in losses during the debacle. Internal emails that emerged in congressional investigations were especially revealing of the problems at these companies. “We rate every deal,” one Standard & Poor’s employee famously wrote. “It could be structured by cows and we would rate it.”
There’s an entertaining — and illuminating — scene in the movie “The Big Short” that perfectly captures the pathology. As a Standard & Poor’s employee played by Melissa Leo replies when asked why the ratings agency didn’t insist on higher standards: “They’ll just go to Moody’s.”
Pigs Will Be Pigs
Morgenson explains the new SEC findings in detail.
However, Morgenson failed to mention it was the SEC who created the pigs when it mandated all debt must be rated by a recognized rating agency.
I have written about this problem on many occasions, including a post in 2007 before the financial crisis hit.
Time To Break Up The Credit Rating Cartel
Please consider a few excerpts from my post Time To Break Up The Credit Rating Cartel, written September 28, 2007. …
