Moody’s, Standard & Poor’s corruption: classified risky investments as safe, failed to sound alarm when they knew what was happening

“Between 2002 and 2007, the top three credit rating agencies doubled their revenue, to more than $6 billion a year, the committee said. Most of that growth came from the complex investments that spread trillions of dollars in toxic debt through the financial system….

(Former managing director for Standard & Poor’s) Frank Raiter said management placed increasing pressure on analysts to earn fees by attracting business from banks…

Raiter said analysts felt they faced a choice: Keep giving inflated ratings or quit their jobs.”

… from the Association Press article: Lawmakers turn to credit raters, prepare overhaul

When investors can’t trust the “most respected ratings firms in the world”, what are they to do?

Finally we have acknowledgment in the United States Senate Committee Hearings by executives of Standard and Poor’s that their integrity and independence was bought and sold like fish at Oistins.

Standard and Poor? Yes, that is both the name and quality of independence and integrity.

Does this mean that when the The Economist says that Barbados is high on the transparency index that everyone else is that much more corrupt – or rather that The Economist’s clients can’t afford another financial meltdown? Maybe it means both!

And then there are the pronouncements of the IMF – International Monetary Fund – the body that has countries as its members. Can we believe the IMF? Can we believe Moody’s? Standard & Poor’s?

Standard & Poor's, Moody's - sold their ratings and integrity like fish at Oistins

No matter their level of experience and sophistication, how is an investor to know when the ratings organisations are shining them on?

President Obama’s critical goal next week is financial regulation and he will try and get as tough a reform bill as possible. He will have to compromise somewhat but this is realism not a sell out. Something is going to give one way or the other but if the financial community doesn’t take this medicine it will be much much worse later on. Much worse.

Article and some quotes suggested by BFP reader Reality Check.

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Filed under Barack Obama, Barbados, Business & Banking, Consumer Issues, Corruption, Ethics, Offshore Investments

One response to “Moody’s, Standard & Poor’s corruption: classified risky investments as safe, failed to sound alarm when they knew what was happening

  1. Crusoe

    The Economist is the only ‘reliable’, financial news source.

    The Economist does actually give independent views and interesting, informative analysis.

    Some others i.e. FT, have a few contributors who are excellent, but as a general statement, I am only comfortable giving a broad brush of exscellence to the Economist.

    The rating agencies are paid by the clients that they rate.

    How can one be intrinsically involved in the creation and marketing of the sub-prime instruments, but claim to be independent?

    Can Otis Gibson umpire a West Indies cricket match, even though he is coach?

    Really.

    This is why state regulators are necessary, at least to view the files and analysis of the auditors and rating agencies, to ensure that proper analysis has been done.

    This is also why, when unemployment is still up in the UK and US, but some people are speaking of recovery, you should go have a think and wonder what their agenda be.

    Remember, only ‘true revenue earning assets’ are worth something.

    The stock markets do not reflect this properly, they are full of smoke and mirrors.

    Greed, is an awful thing.