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The Eagle

The Last Mystery Of The Financial Crisis

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What about the ratings agencies?

That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?

Man, are they ever. And a lot more than even the least generous of us suspected.

Thanks to a mountain of evidence gathered for a pair of major lawsuits, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

"Lord help our ******ing 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 falters," ruminates one more.

Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.

Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."

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.

[...]

Read the entire very interesting article here:

http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619

Without rating agencies the entire mortgage backed securities scam would have never worked and as the above article reveals the rating agencies seem to be completely crooked, ratings are given out to those who pay for it, not based on proper risk analysis. :angry:

And what's worse these scamsters are still operating and their ratings are still taken into account by governments, banks and regulators...

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Historically there is a strong correlation between a company's rating and the odds of it going insolvent within 5 years.

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Historically there is a strong correlation between a company's rating and the odds of it going insolvent within 5 years.

Historically many things have been different, but that doesn't change that in recent years ratings agencies have been very corrupt as the article illustrates in great detail.

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Historically many things have been different, but that doesn't change that in recent years ratings agencies have been very corrupt as the article illustrates in great detail.

The ratings agencies' treatment of CDOs was very poor leading up to the crisis - they were happy to take the money, did not understand the products and did not bother to put the resources into finding out. Without their blessing for almost any old crap, a lot of the bad loans would never have been made.

However, I will stand by what I said about historically being a good guide to a firm's chances of default. A credit rating is still the best guide to the chances of a company being there in 5 years time.

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Historically there is a strong correlation between a company's rating and the odds of it going insolvent within 5 years.

makes sense. If you haven't got enough money to bribe the rating agency you are probably skint.

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  • 239 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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