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View Diary: Franken's Amendment Passes, 64 to 35 [Updated with more good news] (221 comments)

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  •  Tapes? (2+ / 0-)
    Recommended by:
    PsychoSavannah, bmcphail

    Hmm the e-mails show that the individual raters in Moody's wanted to look at the tapes of the mortgage loans, but were told by managers not to...  Either those employees didn't know what they were doing or you're mistaken about privacy concerns.

    Reported elsewhere independently is the observation that the CDOs were rated on the basis of the CDSs via Li's gaussian copula function.  This also doesn't square with your allegation.

    Moreover, if the credit rating agencies were unable to investigate the underlying credit worthiness of the borrowers then they shouldn't have rated the CDOs!  It's fundamental misrepresentation, aka, fraud.

    But all that money was just too hard to pass up...

    I agree with your 2nd to last paragraph.  Competition failed.  See the GOP/Bush law that was supposed to promote competition among the CRAs.  Fraud.  RICO.  Throw them in jail.

    One last point: the bolded section in the diary really is the key point.  The board will be comprised of the CRAs customers, who will be putting all of these defective agencies under the microscope for quite some time...

    •  Tapes? (1+ / 0-)
      Recommended by:

      I worked in IT. There were no tape readers on the credit rating side of the S&P house (I can't speak for Moody's or Fitch) and we were prohibited from accessing anything on the Information Services (S&P 500) side due to the "Chinese Wall" requirement by the SEC, which was unique to S&P.

      There's no way the analysts could have efficiently gone over that data and provided a rating. There was just too much of it and my take is that is one of the reasons why the banks were eager to do it because it made it easy to pull the wool over the ratings agencies eyes.

      By law the mortgage backed securities had to be rated or they couldn't be sold and since the law allowed them to exist and be sold on the market the ratings agencies had no choice but to rate them based on the information they could get, most of which was provided by people who had every incentive to mislead.

      My point is that it is not as cut and dried or as simple as many believe. The system was complex by design and while the credit ratings agencies could have pushed harder for more information the banks and investment firms selling the instruments bear most of the burden of blame because they had every incentive to lie to the CRAs and because it was extremely easy to do so, they did.

      When the power of love overcomes the love of power the world will know peace. -Jimi Hendrix -6.0 -5.33

      by Cali Techie on Thu May 13, 2010 at 01:10:21 PM PDT

      [ Parent ]

      •  Mortgages traditionally (1+ / 0-)
        Recommended by:
        Cali Techie

        have come with plenty of specialized paperwork I believe.

        There are also low-doc mortgages. My bank would look at three years worth of IRS returns.

        Property tax information is readily available.

        Credit scores from one of the big three should have been included with the paperwork.

        •  Given each instrument (0+ / 0-)

          had slices of thousands if not hundreds of thousands of mortgages in them it would take years to sift through all that info. In most cases they had only a few days or a week at best.

          Structured Finance was considered safe because supposedly only a small percentage of the slices of mortgages in each instrument was considered risky. Unfortunately the people doing the slicing and dicing were mixing in more risk than they admitted. It would have been prudent for the analysts to be able to at least look through a representative sample of the mortgages. I'm not sure if that happened, but it would have been very very stupid if the CRAs intentionally downplayed the risk in those instruments as the risks to their business was exceedingly great and not worth it.

          When the power of love overcomes the love of power the world will know peace. -Jimi Hendrix -6.0 -5.33

          by Cali Techie on Thu May 13, 2010 at 04:11:16 PM PDT

          [ Parent ]

          •  Intentionally stupid or just plain greedy? (0+ / 0-)

            Again, if they couldn't evaluate all the parts of a CDO they shouldn't have rated them.  PERIOD.  And a representative sampling -- if statistically significant -- would have been fine.  But they either didn't or they ignored or fudged the results.  Like BP and Halliburton did with the well tests...

            Intentionally stupid or just plain greedy?

            How many times have we seen that choice been asked about bad decisions made by corporate America and the right wing?

            This cannot be a coincidence.

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