Monday, October 27, 2008

Great quotes...

R.D.S: btw-that deal is ridiculous

S.M: I know right.. model def does not capture half of the risk

R.D.S: we should not be rating it

S.M: we rate every deal

S.M: it could be structured by cows and we would rate it

R.D.S: but there’s a lot of risk associated with it – I personally don’t feel comfy signing off as a committee member.

Instant messaging exchange between two Standard and Poor's employees...

The credit ratings agencies were the ones giving high credit ratings to securities, even when it was not warranted...

"... Moody's and S&P, public companies, get fees from their clients (the banks that packaged the securities) for grading the securities. And starting in 2000, Bloomberg reports, the companies began aggressively shifting their focus from informing investors to drumming up business. The easiest way to do that was to keep the client happy, and nothing made a client happier than a AAA credit rating, the gold standard. And how to arrive at that AAA rating? As one former S&P senior analyst puts it "My mandate was to find a way. Find the way."..."

For additional perspective on the role of the credit ratings agencies (Standard & Poor's, Moody's, Fitch...) in the subprime mess read the links below:

Insiders Detail How Bottom Line Drove Credit Ratings
Bringing Down Wall Street as Ratings Let Loose Subprime Scourge
`Race to Bottom' at Moody's, S&P Secured Subprime's Boom, Bust