Sunday, October 18, 2009

McClatchy: Moody's Purged Analysts and Execs Who Warned About Structured Finance Shenanigans, Promoted The Worst Offenders

(Via John Cole)

Here. Quoting:
As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

Is there nothing we can do about this? I mean, is there no way to have a kind of Center for Economics in the Public Interest (like CSPI except, ya know, for economics, and without the anti-corn-syrup loons?).

Apparently the people who are supposed to be rating these things cannot be trusted. Is there any way to either (a) establish a rating institution that can be trusted or (b) basically divest ourselves from this bullshit?

I've never cared about financial matters at this level, so I know nothing about this nonsense.


Blogger lovable liberal said...

What's amazing is how long it took for the short-run greedheads to hold enough power in Moody's to act on this:

To promote competition, in the 1970s ratings agencies were allowed to switch from having investors pay for ratings to having the issuers of debt pay for them. That led the ratings agencies to compete for business by currying favor with investment banks that would pay handsomely for the ratings they wanted.

Promote competition? To promote the purchase of rosy debt ratings would be more accurate. And you think grade inflation is bad, WS!

5:24 PM  

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