Thursday, May 13, 2010

Meanwhile LibCon soften stance on banks

Prosecutors Ask if 8 Banks Duped Rating Agencies

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.

Posted by mken @ 10:20 AM (900 views)
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4 thoughts on “Meanwhile LibCon soften stance on banks

  • Good, but I hope the investigation is truly unbiased – “Ratings arbitrage” was almost certainly performed IMO. The fact that the issuer paid for a rating AND the rating agencies’ models were in the public domain would have made this an “unmissable opportunity” whist there were investors who blindly trusted the agency ratings – it’s akin to a hotel tweaking things slightly in an attempt to up their likely star rating. The question in my mind is not if it happened but how clandestine the activity was and if it there were direct agreements between the agencies and the banks – if not then the fault lies with the lazy investors I’m afraid.

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  • 1. 51ck-6-51x said…if not then the fault lies with the lazy investors I’m afraid?

    ‘IF NOT’. LOL

    The denial carries on.

    51ck, Who has benefited? It’s that simple, even for a 51ve-6-51x year old.

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  • refusetobuy says:

    I wonder if the agencies knew if their models were wrong. Also, whether they knew how wrong they were.

    Moody’s have found a fault in their code (http://us.ft.com/ftgateway/superpage.ft?news_id=fto052020081848170760). S&P havent. Yet they both provided the same ratings. Fishy.

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  • refusetobuy,

    What overlap was there in the CDO space? I thought issuers just went with the most favourable rating, so in the cases where the bug had a positive effect on the rating Moody’s would have won that business.

    But yes let’s just blame the code – it’s not like they won’t have looked at things like this manually too for a sanity check now is it?! Tsk.

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