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(Rolling Stone)   The Last Mystery of the Financial Crisis 'It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it'   (rollingstone.com ) divider line
    More: Interesting, Standard & Poor, Moody, poor, evaluation, commercial paper, Financial Crisis Inquiry Commission, accounting fraud, investment vehicles  
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2130 clicks; posted to Business » on 19 Jun 2013 at 12:46 PM (2 years ago)   |   Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2013-06-19 12:51:08 PM  
Obvious tag broken today?

Here is how they did it.

I have Rent Party Financial Instruments.  I want to sell them to suckers investors like pension funds and people building a 401K retirement fund.  In order to do so, they need to be rated high quality.  So, like anyone looking for an objective assessment of my RPFIs, I go to a ratings agency, and give them a whole bunch of money to assess my product.

Because I am so awesome, they tell me it's the best investment ever every single time!

That *anyone* takes ratings agencies seriously today is yet one more data point on the mountain of data points suggesting that Americans are farking stupid saps for the wealthy.

/ Feudalism, here we come!
 
2013-06-19 12:53:25 PM  
Another "conspiracy theory" goes mainstream.

Can't wait for the "news" to bring in the "experts" to "debunk" it.
 
2013-06-19 12:53:38 PM  
umm it's been known for a long time that shiatbags like Moody's and S&P gave AAA ratings to anything as long as they were getting paid
 
2013-06-19 12:57:12 PM  
Then silently co-opt them such that the ratings go back up and do not drop.
 
2013-06-19 01:02:14 PM  
Finally, we can settle this matter for good and all accept that Jimmy Carter caused this with the CRA by forcing banks to give loans to black people.
 
2013-06-19 01:09:11 PM  
"Shows how they did it..."

I'm guessing they did it by lying.
 
2013-06-19 01:10:38 PM  
I blame Obama

...Because he dumped a ton of capital on the market, and it recovered. If the whole thing collapsed, we could have gotten our mob on, and start killing these people
 
2013-06-19 01:10:42 PM  
Well....doi.
 
2013-06-19 01:15:16 PM  
It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.

Why do I suspect that doing that isn't illegal?
 
2013-06-19 01:18:25 PM  

Eapoe6: Another "conspiracy theory" goes mainstream.


The fact AAA securities tanked, is proof in itself that they farked up somehow. The question is, "how can we blame this on poor people?"
 
2013-06-19 01:18:56 PM  
That would explain why S&P is running radio spots in the Washington DC area talking up how valuable and honest they are.

Any arsehole could have told you in 2007 that there was no goddamn way house prices were sane or sustainable, but hey, not just any arsehole works at S&P.
 
2013-06-19 01:23:29 PM  

Griftin Rubes: umm it's been known for a long time that shiatbags like Moody's and S&P gave AAA ratings to anything as long as they were getting paid


Yeah, it's been known that the ratings were garbage, but this seems to show that their people *actively* knew just how crappy a lot of this stuff was. The general assumption to date has been that they were basically incompetent and just didn't know how to rate this stuff so they caved to the wishes of the banks. (Or, at the least, I haven't really seen anything that suggested active malfeasance on the ratings' agencies parts.)
 
2013-06-19 01:35:46 PM  
a AAA rating means less than an award from JD Power and associates, and probably costs less too.  And that is just sad.
 
2013-06-19 01:37:41 PM  
Maybe the problem is that we have "Nationally Recognized Statistical Rating Organizations" which then are protected from their ratings by the courts.
 
2013-06-19 01:41:18 PM  

YoungLochinvar: Griftin Rubes: umm it's been known for a long time that shiatbags like Moody's and S&P gave AAA ratings to anything as long as they were getting paid

Yeah, it's been known that the ratings were garbage, but this seems to show that their people *actively* knew just how crappy a lot of this stuff was. The general assumption to date has been that they were basically incompetent and just didn't know how to rate this stuff so they caved to the wishes of the banks. (Or, at the least, I haven't really seen anything that suggested active malfeasance on the ratings' agencies parts.)


If you're referring specifically to the mortgage meltdown, it's a giant finger-pointing match.  S&P rated the bonds AAA because the banks that sold the loans stated they were good.  The banks stated the loans were good because the third party originators stated they did their due diligence when closing the loan.  The third party originators stated they did their due diligence because it's the same process they've always used, and you can't blame them because the government changed its policies on how to qualify homebuyers.  The government changed its policies on how to qualify homebuyers because they wanted homes to be more accessible to the general public.  So I guess we blame the general public?
 
2013-06-19 01:47:46 PM  

YoungLochinvar: Griftin Rubes: umm it's been known for a long time that shiatbags like Moody's and S&P gave AAA ratings to anything as long as they were getting paid

Yeah, it's been known that the ratings were garbage, but this seems to show that their people *actively* knew just how crappy a lot of this stuff was. The general assumption to date has been that they were basically incompetent and just didn't know how to rate this stuff so they caved to the wishes of the banks. (Or, at the least, I haven't really seen anything that suggested active malfeasance on the ratings' agencies parts.)


I read "The Big Short" recently, and at least according to the author, they were giving this stuff AAA ratings and they had no clue what it was.

/I believe the exact trick was that part of the ratings algorithms was securitization.  So if you took a bunch of junk mortgages, chopped them up and basically sold everyone 1/1000th of 1000 bad mortgages, they can't ALL fail at once (Yes, they can), so they'd get a higher rating.  The secret was that you could securitize securitized mortgages and keep re-securitizing until you got a AAA.  Combine this with the "Sell a $700,000 house to a farmhand making $13,000 a year" craze to create more mortgages, and you get the capital crisis.
//And thus was shiat made to look like diamonds.
 
2013-06-19 01:49:45 PM  

valkore: If you're referring specifically to the mortgage meltdown, it's a giant finger-pointing match.  S&P rated the bonds AAA because the banks that sold the loans stated they were good.  The banks stated the loans were good because the third party originators stated they did their due diligence when closing the loan.  The third party originators stated they did their due diligence because it's the same process they've always used, and you can't blame them because the government changed its policies on how to qualify homebuyers. The government changed its policies on how to qualify homebuyers because they wanted homes to be more accessible to the general public.  So I guess we blame the general public?


That didn't happen. That's a flat out lie.

The third party originators did change their process, and the government had nothing to do with it.
 
2013-06-19 01:55:04 PM  

meyerkev: I read "The Big Short" recently, and at least according to the author, they were giving this stuff AAA ratings and they had no clue what it was.

/I believe the exact trick was that part of the ratings algorithms was securitization.  So if you took a bunch of junk mortgages, chopped them up and basically sold everyone 1/1000th of 1000 bad mortgages, they can't ALL fail at once (Yes, they can), so they'd get a higher rating.  The secret was that you could securitize securitized mortgages and keep re-securitizing until you got a AAA.  Combine this with the "Sell a $700,000 house to a farmhand making $13,000 a year" craze to create more mortgages, and you get the capital crisis.
//And thus was shiat made to look like diamonds.


And all the demand for those kickarse AAA securities created demand for more mortgages to securitize. And THAT is what caused 3rd party originators to get creative with how they qualified home buyers.

"You work right?"
"Yep."
"Ok, I take your word for it. Here's a mortgage... Oh Mr. Investment Bank, I now have a new loan for you to securitize. Please buy it off me as soon as possible."
 
2013-06-19 02:18:37 PM  

impaler: he third party originators did change their process,


Some of them did. I went through my credit union for mine in 2004 which referred me to a state loan program and got nothing but straight-forward paperwork and a normal but low-rate mortgage.

I don't see why people went to skeevy-looking places like Countrywide. For something so important as borrowing a massive amount of money, why not go to someplace with a reputation to uphold, whose own money might be on the line?
 
2013-06-19 02:40:41 PM  

Publikwerks: I blame Obama

...Because he dumped a ton of capital on the market, and it recovered. If the whole thing collapsed, we could have gotten our mob on, and start killing these people


Yeah, Obama, you asshole. We could've had this problem solved with a good length of rope. Now look what ya done!
 
2013-06-19 02:49:41 PM  

impaler: valkore: If you're referring specifically to the mortgage meltdown, it's a giant finger-pointing match.  S&P rated the bonds AAA because the banks that sold the loans stated they were good.  The banks stated the loans were good because the third party originators stated they did their due diligence when closing the loan.  The third party originators stated they did their due diligence because it's the same process they've always used, and you can't blame them because the government changed its policies on how to qualify homebuyers. The government changed its policies on how to qualify homebuyers because they wanted homes to be more accessible to the general public. So I guess we blame the general public?

That didn't happen. That's a flat out lie.

The third party originators did change their process, and the government had nothing to do with it.


Here's how you deal with that.  Ask the person how the government did that.
 
2013-06-19 02:55:13 PM  
Gentlemen! Ladies! Glad you came by! Verbal Toxin's Riotous Belligerent Emporium has all your needs in one place! Act now, and you get $10 of two pairs of torches, 15% off every third shotgun, and every sixth Molotov cocktail is free!
 
2013-06-19 03:03:40 PM  

verbaltoxin: Gentlemen! Ladies! Glad you came by! Verbal Toxin's Riotous Belligerent Emporium has all your needs in one place! Act now, and you get $10 of two pairs of torches, 15% off every third shotgun, and every sixth Molotov cocktail is free!


What is your going rates on pitchforks, tar, feathers, stout ropes for making nooses, and guillotines? Oh, and do you carry fuel appropriate for burning sleazeball bankers at the stake?
 
2013-06-19 03:53:09 PM  
So it's like back when the church was selling indulgences?
 
2013-06-19 04:15:59 PM  
The substance of the story is the details in the email exchanges.  The culpability of the ratings agencies has been common knowledge from the beginning.

The double whammy of notching and issuer pays makes the rating game a big ol extortion scheme.   They have been playing the "nice instrument there, be a shame if something were to happen to it" game a long, long time.  There was a lawsuit about it 8-10 years ago, I'll try to find something on it.  The inflation of the CDOs to AAA is a logical consequence of the scam they have been running.
 
2013-06-19 04:24:44 PM  
 
2013-06-19 04:56:26 PM  

Eapoe6: Another "conspiracy theory" goes mainstream.

Can't wait for the "news" to bring in the "experts" to "debunk" it.


"Why" are "we: using "so many" quotation "marks?"
 
2013-06-19 05:15:10 PM  
Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.
 
2013-06-19 05:18:53 PM  

thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.


You are basically asking investors to do the impossible
 
2013-06-19 05:33:17 PM  

impaler: thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.

You are basically asking investors to do the impossible


Read? Not speculate?
 
2013-06-19 06:06:53 PM  

thornhill: Read? Not speculate?


It's almost impossible for an investor to research the health of the underlying mortgages in a mortgage backed security.
 
2013-06-19 06:09:19 PM  

thornhill: impaler: thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.

You are basically asking investors to do the impossible

Read? Not speculate?


To analogize, your average Joe Schmo goes to buy a used car. He walks onto the lot, sees something he likes. The car dealer swears up and down that the thing is a beauty, has low miles, only been driven around town, never wrecked, etc. Well, Joe knows used car salesmen are scumbags, so he asks for a title search to see if it's ever been salvaged or flooded. The car salesman gets him a title report that says everything's fine. Joe's a suspicious bastard, though, so he asks if he can take it to a mechanic down the street to get it checked out. He does, and the mechanic says everything's fine. Now, Joe thinks he's got a good deal, so he buys the car. Naturally, about a hundred miles later, the thing catches on fire in his garage, burning everything to cinders. Turns out, the public documentation available on the title report didn't show that the car salesman was paying off the mechanic down the street to lie about the botched repair job somebody had performed on the gas line, causing the fire. That's not the sort of thing a title report has to show, though, so it's not like it's their fault.

In this analogy, the investment banks are the car salesmen, Moodys and S&P are the mechanic, and any research the investor had available was like that title report - useful information, but ultimately not the whole picture. And certainly not enough information to keep Joe's house from burning down when the mechanic and the salesman were lying to his face and colluding against him behind his back.
 
2013-06-19 06:17:02 PM  

phyrkrakr: thornhill: impaler: thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.

You are basically asking investors to do the impossible

Read? Not speculate?

To analogize, your average Joe Schmo goes to buy a used car. He walks onto the lot, sees something he likes. The car dealer swears up and down that the thing is a beauty, has low miles, only been driven around town, never wrecked, etc. Well, Joe knows used car salesmen are scumbags, so he asks for a title search to see if it's ever been salvaged or flooded. The car salesman gets him a title report that says everything's fine. Joe's a suspicious bastard, though, so he asks if he can take it to a mechanic down the street to get it checked out. He does, and the mechanic says everything's fine. Now, Joe thinks he's got a good deal, so he buys the car. Naturally, about a hundred miles later, the thing catches on fire in his garage, burning everything to cinders. Turns out, the public documentation available on the title report didn't show that the car salesman was paying off the mechanic down the street to lie about the botched repair job somebody had performed on the gas line, causing the fire. That's not the sort of thing a title report has to show, though, so it's not like it's their fault.

In this analogy, the investment banks are the car salesmen, Moodys and S&P are the mechanic, and any research the investor had available was like that title report - useful information, but ultimately not the whole picture. And certainly not enough information to keep Joe's house from burning down when the mechanic and the salesma ...


Your analogy is interesting, but your logic flawed.

Rule #1 for buying a used car is having it inspected by a neutral 3rd party mechanic -- never accept what the seller is telling you on faith.

In fact, using your example, I bet most people do way more research when buying a used car than they do when buying stocks. Everyone who speculated and got hosed on Facebook is case and point.
 
2013-06-19 06:27:31 PM  

impaler: thornhill: Read? Not speculate?

It's almost impossible for an investor to research the health of the underlying mortgages in a mortgage backed security.


That's simply not true. These mortgage-backed securities were not being bought by joe six-pack. They were being bought by major financial institutions, companies and funds that never bothered to do any due diligence -- they just accepted the ratings.

Again, read The Big Short. Michael Lewis profiles individuals who did take the time to do some digging, realized that they were a house of cards, and profited by betting against them. If private citizens could figure this out, there's no reason the organizations buying up hundreds of millions worth of mortgage-backed securities couldn't see the truth. Further, a lot of people were aware that the ratings were bogus, that the securities were filled with subprime mortgages, but they were so greedy that they diluted themselves into thinking that housing prices would always go up, and the homeowners would always be able to refinance when the teaser period ended.
 
2013-06-19 06:34:38 PM  

thornhill: Rule #1 for buying a used car is having it inspected by a neutral 3rd party mechanic -- never accept what the seller is telling you on faith.


He did think he took it to "a neutral 3rd party mechanic." It's not realistic to think the car-buyer would be able to uncover collusion between the mechanic and the dealer, and that's what you're asking the investor to do.

That's what the ratings agencies are supposed to be as well. A neutral 3rd party.
 
2013-06-19 06:36:56 PM  

thornhill: That's simply not true. These mortgage-backed securities were not being bought by joe six-pack. They were being bought by major financial institutions, companies and funds that never bothered to do any due diligence -- they just accepted the ratings.


Oh, you're talking about the big players. Nevermind then. They have the manpower to do that.
 
2013-06-19 08:04:01 PM  
FTFA: they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy - how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities.

And yet none of them will go to jail or even face serious consequences.  Science bless our little multi-tiered justice system.
 
2013-06-19 08:10:49 PM  
FTA:  "Lord help our farking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.

Farking hang them all.
 
2013-06-19 11:30:16 PM  
This explains greatly why Moody's and Standard & Poors keep threatening to downgrade the country's credit rating every time they refuse to slash Social Security. They stand to make a sh*tload if that ever happens.

At Standard & Poors, it's their standard to make everyone else poor.
 
2013-06-19 11:49:14 PM  
Matt Taibbi? Seems legit.
 
2013-06-19 11:56:09 PM  

thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.


Don't you realize? It's all about blame. Today it's the rating agencies. Yesterday it was Bank of America. Tomorrow it will be jpmorgan chase or Goldman or aig or some other big "rich" firm. Don't you understand that we must find a scapegoat to blame for our troubles? We must never acknowledge that there was a real estate bubble that most of society bought into that caused the crisis. We must find someone else (preferably rich) to blame and point fingers at and take the heat. The point is: never, ever, take personal responsibility for anything. If you find a scapegoat, you never have to feel bad about your own poor financial decisions!
 
2013-06-19 11:57:00 PM  

TV's Vinnie: This explains greatly why Moody's and Standard & Poors keep threatening to downgrade the country's credit rating every time they refuse to slash Social Security. They stand to make a sh*tload if that ever happens.

At Standard & Poors, it's their standard to make everyone else poor.


In all my time on fark, I've only had 1 approved link ever: "S&P downgrades US Treasury securities for the first time ever. Market panics. Investors flee risk and move to standard safe-haven: US Treasury securities"

That probably pissed them off.
 
2013-06-20 12:05:08 AM  

Debeo Summa Credo: thornhill: Except that if you took the time to look at what was actually in these mortgage backed securities, you would have seen that it was garbage (which is what the people profiled in The Big Short did and made money betting against them). The problem is that so called "investors" rarely research the financial products they buy. And while I'm not trying to give the rating agencies a pass, articles like this let stupid investors off the hook.

Don't you realize? It's all about blame. Today it's the rating agencies. Yesterday it was Bank of America. Tomorrow it will be jpmorgan chase or Goldman or aig or some other big "rich" firm. Don't you understand that we must find a scapegoat to blame for our troubles? We must never acknowledge that there was a real estate bubble that most of society bought into that caused the crisis. We must find someone else (preferably rich) to blame and point fingers at and take the heat. The point is: never, ever, take personal responsibility for anything. If you find a scapegoat, you never have to feel bad about your own poor financial decisions!


The general public is definitely culpable for the housing crash. The resulting financial crash that ensued (2 years after housing started declining, the thing that caused massive unemployment and business bankruptcies) is totally in the hands of big banks. The "big 5" banks lobbied for the ability to increase their leverage in 2004 and got it. Now only 3 of them still exist because of it. "Waaaaa! Government regulation prevents us from making massive profits!!!" Yeah, it also prevents massive losses. Douchebag idiots.
 
2013-06-20 12:43:09 AM  

Debeo Summa Credo: Don't you realize? It's all about blame. Today it's the rating agencies. Yesterday it was Bank of America. Tomorrow it will be jpmorgan chase or Goldman or aig or some other big "rich" firm. Don't you understand that we must find a scapegoat to blame for our troubles? We must never acknowledge that there was a real estate bubble that most of society bought into that caused the crisis. We must find someone else (preferably rich) to blame and point fingers at and take the heat. The point is: never, ever, take personal responsibility for anything. If you find a scapegoat, you never have to feel bad about your own poor financial decisions!


Do you understand that no matter how willing the American people were to engage in real estate speculation, they did not have the financial vehicles to do so on the scale we saw until the banks came up with CDO's and CDS's and a bunch of other acronyms that allowed for free flow of capital from your home to their wallet?  Do you understand that no matter how badly an illegal Polish immigrant making less than $20K a year wanted a house, she couldn't get a mortgage unless someone issued it to her?  Do you understand that in order to make that happen, the mortgage issuer engaged in outright fraud that often involved falsifying applications?  Do you understand that most of the guys at the top knew that a bubble had formed and was likely to pop within the next three years and yet they ramped up mortgage issuance anyway?  Do you understand that completely independent of what the people were doing, Goldman Sachs at the end was using synthetic CDO's to destroy AIG?  Do you understand any of what happened in 2008?
 
2013-06-20 12:50:28 AM  

Mentat: Do you understand any of what happened in 2008?


Haven't you seen him in other threads?

He's trolling.
 
2013-06-20 08:00:27 AM  
since none of these people have gone to prison

i can only guess that what they did was entirely legal

(deliberately being naive)
 
2013-06-20 10:13:21 AM  
Step One: Answer the phone when Bill Clinton and Alan Greenspan call.
 
2013-06-20 07:22:43 PM  

thornhill: Michael Lewis profiles individuals who did take the time to do some digging, realized that they were a house of cards, and profited by betting against them


Not only that, brokerages that SOLD the CDOs to institutional investors KNEW THEY WERE CRAP and shorted the stock of the people that bought them, in order to profit from the consequences of selling shiat to their own customers.  It was like selling secret ex lax brownies then investing in toilet paper.
 
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