A Smoking Gun on Corruption of Ratings Agencies: The Bankers Friends' Scam

[marmar]

from the Working Life blog:



A Smoking Gun on Corruption of Ratings Agencies: The Bankers Friends' Scam

by Jonathan Tasini
Monday 02 of July, 2012


Among the myths promoted by the traditional press--myths that hurt the entire country--is the "independence" of the ratings agencies. And that myth was one of the underpinnings of the financial crisis--the ratings agencies gave positive ratings to the crummy debt securities that were at the heart of what led to millions of people losing their jobs. Now, a smoking gun has emerged to prove what a scam it was.

Per Gretchen Morgenson, one of the few denizens of the traditional press who questioned the worthiness of the securities, in the New York Times:

For years, the ratings agencies have contended that the grades they assign debt securities are independent opinions and therefore entitled to First Amendment protections, like those afforded journalists. But newly released documents in a class-action case in Federal District Court in Manhattan cast doubt on the independence of the two largest agencies, Moody’s Investors Service and Standard & Poor’s, in their work with a Wall Street firm on a debt deal that went bad as the credit crisis began(emphasis added)

.

And:

When Cheyne issued its various securities in 2005, Moody’s and S.& P. rated them all investment grade. Even though Cheyne’s portfolio was bulging with residential mortgage securities, some of its debt received the agencies’ highest ratings, a grade equal to that assigned to United States Treasury securities. About two years later, as mortgage losses began to balloon, both agencies downgraded Cheyne’s debt below investment grade, to what is known as junk.

And what happened when a top rating was at risk? ........................(more)

The complete piece is at: http://www.workinglife.org/blogs/view_post.php?content_id=15378

[xchrom]

1. du rec. nt

[dixiegrrrrl]

2. Another aspect of the pervasive fraud which has not gotten enough attention.

REC.
and thanks for posting this!

[Mnemosyne]

3. K&R