It could be structured by cows and we would rate it!

I had pointed to the Lehman and AIG Hearing and had also summarised Richard Fuld’s testimony.

The same Oversight Senate Committee had a hearing on credit rating agencies. The findings on the hearing are not comforting at all. I only read the opening statement by Chairman Waxman. The committee has shown evidence that things weer quite messy in these elite halls of fame.

In October 2007, a Moody’s management report said:

We heard 2 answers yesterday: 1. people lied, and 2. there was an unprecedented sequence of events in the mortgage markets. As for #1, it seems to me that we had blinders on and never questioned the information we were given. … As for #2, it is our job to think of the worst case scenarios and model them. … Combined, these errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue.

At S&P:

The documents from Standard and Poor’s paint a similar picture. In one document, an S&P employee in the structured finance division writes: “It could be structured by cows and we would rate it.” In another, an employee asserts: “Rating agencies continue to create [an] even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.”

I had posted a while back that soul searching was needed at rating agencies. A complete overhaul is needed to thew way these institutions function. Let me read the testimonies and point if I find anything interesting.

One Response to “It could be structured by cows and we would rate it!”

  1. Credit rating agencies make merry eitherways « Mostly Economics Says:

    […] this crisis, rating agencies role has been pivotal. It has been a colossal failure, nasty comments leading to soul seraching. Their overall track record predicting sovereign risks is pretty bad as […]

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