Longtime readers know how I have been basically having a slow aneurysm regarding the fact that the ratings agencies have paid absolutely no price for what they did to create the housing bubble, but then again, neither has anyone else. Regardless, this is no great shock:
Moody’s Corp and Standard and Poor’s triggered the worst financial crisis in decades when they were forced to downgrade the inflated ratings they slapped on complex mortgage-backed securities, a U.S. congressional report concluded on Wednesday.
In one of the most stark condemnations of the credit rating agencies, a Senate investigations panel said the agencies continued to give top ratings to mortgage-backed securities months after the housing market started to collapse.
The agencies then unleashed on the financial system a flood of downgrades in July 2007, the panel said.
“Perhaps more than any other single event, the sudden mass downgrades of (residential mortgage-backed securities) and (collateralized debt obligation) ratings were the immediate trigger for the financial crisis,” the staff for Senators Carl Levin and Tom Coburn wrote in their report.
The findings come after the Senate’s Permanent Subcommittee on Investigations spent two years poring over countless documents and holding hearings on the causes of the crisis. The probe only focused on the two largest rating agencies; it did not study Fitch Ratings.
Basically, being a rating agency is fundamentally no more difficult from being the right-hand man in a Hollywood star’s posse. You are paid handsomely to stand around and tell everyone how awesome the Hollywood star is. It’s good work if you can get it.
mclaren
Most jobs in America are like that. Name any book editor who ever got fired because books sales are down. They never do.
Name an economist who got fired for giving a wrong prediction. Never. Not once.
Name a CEO who gets dumped because his company profit margin goes down the tubes. Nada. Never happens.
Name a teacher who ever got fired because the students couldn’t pass basic math.
It’s never the book editors’ fault, never the economist’s fault, never the CEO’s fault, never the teacher’s fault. It’s always the economy’s fault, the market’s fault, the parents’ fault, whatever. Always someone else’s fault.
No one is accountable today. Everything is always someone else’s fault.
Bob Loblaw
Economy’s all about confidence, John. Very important that everybody remain confident and upbeat at all times. An economy based on tangibility and empiricism is so much harder to game and profit off of, and that would be just a real bummer.
cathyx
We should look forward, not back. What’s done is done and we can’t change it.
Dave L
Look, not to defend the agencies, but this is a pretty stupid critique. So, the downgrades were “the immediate trigger for the financial crisis”? Does that mean that if they had gone on pretending, it wouldn’t have happened?
By July 2007, a crisis was inevitable. It was everything that happened before that should get the blame — and even more than the rating agencies, criticism should be directed at regulators (and by “regulators”, I mean “Alan Greenspan”) who alternately dozed through and led cheers for the financial bacchanale.
JPL
With notably rare exception, the ratings agencies do a fine job.
Corner Stone
@cathyx:
I say we look forward until we get to December 2012. Then we can punish these fuckers like we’ve always known we were going to!
arguingwithsignposts
The point at which these fuckers figured out they could make a first amendment argument for calling pig shit gold was the point at which we were well and truly fucked.
In a just world, the ratings agencies and their lackies would be marched to the public square and locked in stocks.
arguingwithsignposts
The point at which these fuckers figured out they could make a first amendment argument for calling pig shit gold was the point at which we were well and truly fucked.
In a just world, the ratings agencies and their lackies would be marched to the public square and locked in stocks.
Eric k
Dave L,
I think you missed the point, the ratings agencies are the ones who created the inflated values in the first place. So John isn’t saying they should have kept pretending to prevent the crisis, the point is they never should have created the bogus over inflated estimates in the first place.
PurpleGirl
@mclaren: Name any book editor who ever got fired because books sales are down. They never do.
So you don’t like book editors… Tell me, is the editor supposed to stand around a book store or follow someone’s on-line surfing and MAKE them buy a particular book, or any book.
If book sales are down it’s because people aren’t reading or aren’t buying books. An editor has no control over that.
WereBear
At a certain point, these people got so incompetent they didn’t know how to make money any more, so they just cheat, now.
Thus, their love for tax cuts.
Martin
The real question is why does Tom Coburn hate the free market?
And why the fuck is McCain co-sponsoring a bill on online privacy? Couldn’t Congress at least have the decency to find people that have actually been online to do that? It’s like writing civil rights legislation and not including any of the black guys, or writing sexual predator legislation and not including the Republicans. It just seems irresponsible.
srv
But what about ACORN? Didn’t they run the ratings companies too?
Hermione Granger-Weasley
None of the freemarketeers have paid any price. And bend over, because here they come again.
Jay C
No shocks, John?
I can think of a couple of surprises from this report; mainly the surprise that the US Senate would spend as much time as they did on this issue: a far bigger jolt being that they would actually issue a report that didn’t cover up, blow off, blame-shift or otherwise shove the godawful scandal of the bond-rating-agency scandal into what we her would call the “Hoocoodnode?” file.
Or find some way to blame Obama.
ksmiami
John as bad as you think it is, I have a story that is even worse about the ratings agencies. They got paid by the very people they needed to be objective about
Maude
@PurpleGirl:
I didn’t know the book editors made the decision to publish. Isn’t that something?
So much for the aquisition group.
Book editors are the salt of the earth.
PurpleGirl
@Maude: I know. I worked as a production editor for two scientific/technical publishers for a number of years and I know a number of people who are editors in science fiction divisions/publishers.
Tom
guillotine time, muthafuckas.
Just Some Fuckhead
Is he saying they shoulda just kept lying about ’em?
Maude
Is the meaning of yellow stars gold stars?
The term yellow stars gives me the creeps.
@PurpleGirl:
Impressive. A hard job at any time.
The newest Michael Conolly book had the wrong gender pronoun on one page. Can’t spell his name. I know that isn’t right.
Conolly could well afford a proof reader before he submitted the ms and then had the galley proof read.
I am a picky thing. I always blame the writer, not the editor.
EDIT:
Dear Maude, please look at the post title before opening your big fat mouth. Thank you.
Meant the stars for the next thread.
sukabi
The Ratings agencies were a prelude to John Kyl… they’ll claim that their ratings were “Not meant to be factual statements“
sukabi
@Martin: lol… made me snort…
sukabi
@Dave L: ummmm, the ratings agencies were in bed with the folks that brought the “products” to market… they were paid to rate them high by the folks asking for the ratings….
no, they shouldn’t have kept lying, they should have done their real jobs and either outright rejected them as crap, or offered up a rating of “junk”… if that had happened from the beginning, there wouldn’t have been the ongoing rape and pillage and subsequent bailouts.
Yevgraf (fka Michael)
@Dave L:
The securities that got so drastically downgraded never actually became “worthless”, inasmuch as the underlying intrinsic value was still at about 70 cents on the dollar.
Same situation with PIIGS debt – all the infrastructure and productive capacity of Portugal, Greece, etc. is still there. The downgrades there have been criminal, and really justify the call for the trial and summary execution of ratings executives.
Marty
@Dave L: Right. It is like blaming Arthur Andersen for the Enron collapse. They were party to the crime but you can’t pin the whole thing on them.
Villago Delenda Est
That would have gone over very well at Nuremberg in 1946.
priscianus jr
@Dave L:
mcd410x
Just found the On Point interview with Michael Lewis and Bethany McLean. Enjoyed it.
dmbeaster
The ratings agency had their role, but lets be clear about something. They are a private industry organization that receives their fees from the issuers they are rating. Everyone knew this and should be aware of the reliability of the ratings due to this fact. The existence of the ratings made it easier for the banksters to resell their crazy loan backed security product, but it did not create the underlying insecurity of the instruments. The dubious quality of the mortgage back bonds was the subject of discussion before the melt down – it was met with the homily that the underlying home market had a long history of stability. The ratings to some extent reflected this conventional wisdom, and the fact that credit default swaps and AIG frequently backed up the risk of default.
What really drove the crisis was that the issuers threw all standards out of the window to create product, and the past history of home values and mortgages could no longer be relied upon to assess the risk of these instruments. Why did that happen? Because the creation of all of these instruments created huge profit in origination, and the name of the game became to create mass numbers of mortgages for bundling no matter what their quality. And the novelty of the new forms of mortgages backed instruments further complicated an assessment of the risk. Plus the credit default swaps and AIG role as de facto insurer enabled these things to be given a high rating despite uncertainty. Since these guarantees were unregulated, no actual capital backed these guarantees, which was itself something of a new twist and a result of deregulation.
This sudden influx of capital and huge loosening of loan standards itself greatly fueled the run up in home values (since loans were easy to get and so much more money was now chasing homes), further feeding the frenzy in a positive feedback loop.
To then say that the belated reassessment of the quality of this crap CAUSED the crisis is idiotic. It may have been a triggering moment, but it was the deliberate creation of crap by the financial industry that created the crisis. And they got their fees out up front, and some made money shorting their own crap later.
Fuck U6: A More Accurate Measure of the Total Amount of Duck-Fuckery in the Economy
What?! No 400+ comment thread? Guess the Juicebaggers just aren’t as intersted when you can’t blame progressives and liberals for the problems.
Silver Owl
Baghdad Bobs.
les
I’m pretty sure either Bill Moyers or Frontline did a show on the ratings scam (can’t find the exact one at the moment.) There’s no way not to blame the rating agencies for a lot of the problem–the show had extensive time with an unrepentant asshole who ran the mortgage backed securities rating department at one of the big 3. He said, in so many words, that they had no fucking idea how to rate the shit, and their ratings were so much bullshit. But they were doing multiple issues a week at 250K a pop, so they just knowingly made shit up and pumped out AAA ratings. The biz grew so fast that his department tried to get others to assist–and had other department heads tell him they refused to be parties to what they viewed as a dishonest scam. But the money kept rolling in, so management kept it coming. Blatant fucking dishonest shit pumped into the market, to keep the MOTU’s pockets lined. And the fuckers are still walking around, still controlling the game.
El Cid
The free market is always able to arrive at the best possible price between the seller and the buyer.
When left untrammeled, the system comes close to a perfect exchange between the two.
Because it does. It just does. So shut up.
JR
I too have been frothing at the mouth about the total lack of accountability of his intellecton the part of the business-running Wall Street “Masters of the Universe”. After all, they stole trillions of $$, making Barney Madoff, Enron, and the Keating Five S&L fraud all together look like petty thievery.
More recently I’m seeing stories in the MSM that are outrageous: “We can’t afford to fire/arrest these financial geniuses – who would run the economic infrastructure if we lost their expertise?” Ignoring the fact the these finanial whizzes destroyed the economy and the savings for retirement of millions of smart, hardworking, conservative middle class folks who should have been able to afford a comfortable and interesting retirement.
Now, of course, most will enjoy a retirement working as a greeter at Walmart! No, really, I have a friend, loves it, meets people all the time, really friendly ourgoing situation. Except for the shoplifters he’s supposed to catch!
No, I think we would have been better off with the bad guys in jail awaiting trial for a few years from the get-go. There’s bound to be an empty compound in Cuba that could hold a few thousand bankers, brokers, and lying sacks of excrement!