Conversation of the Day - 10.23.2008
| Wed Oct. 22, 2008 11:10 PM PDT
CONVERSATION OF THE DAY....Between Rahul Dilip Shah and Shannon Mooney, a pair of analysts at the credit rating agency Standard & Poor's, chatting via IM back in 2007:
RDS: btw: that deal is ridiculous
SM: I know right ... model def does not capture half of the risk
RDS: we should not be rating it
SM: we rate every deal
SM: it could be structured by cows and we would rate it
This was made public as part of a House committee hearing today. The New York Times reports on other revelations:
Among the documents uncovered by the committee was an internal board presentation delivered by [Raymond] McDaniel to Moody's directors in October 2007. According to the presentation, he told his board: Analysts and managing directors "are continually 'pitched' by bankers, issuers, investors." At times, he conceded, "we drink the Kool-Aid."
....Mr. Waxman's committee also cited an internal e-mail exchange between [Frank] Raiter, who had been asked to rate a collateralized debt obligation called "Pinstripe," and Richard Gugliada, an S.& P. managing director. Mr. Raiter had requested highly detailed data about each individual loan, known as loan level tapes, to assess the creditworthiness of the loans in the security, but Mr. Gugliada wrote: "Any request for loan level tapes is totally unreasonable!!! It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so."
Mr. Raiter responded: "This is the most amazing memo I have ever received in my business career."
Kinda reminds you of all those Enron emails and phone conversations gloating over how they'd created the California energy "crisis," doesn't it. Good times.
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Comments
I think it was PK on the Diane Rehm show yesterday who commented that the losses of the financial institutions overwhelm all of their profits over the past five years or so.
And so, why shouldn't stockholders or SEC or ? clawback every single bonus paid to the executives.
What really annoys me about the bailout are
a) claims that somehow this will change Wall Street
b) claims that somehow "capitalism" will have to change
c) no one is going after the compensation comittees
d) no one is suggesting making the financial companies more friendly to unions
Nothing will change. The new capitalism will look just like the old capitalism. Enormous bonuses will be paid based on very little.
Thom Hartmann, when I used to listen to Air America before it morphed completely into Rushbo Mirror Radio has had some interesting comments about the nature of what has to go into a corporation's charter in other countries. And it's very interesting to contemplate.
Ever hear of "Sacred" cows-Cows are a very appropiate analogy for Investment Firms and Cheney's Haliburton-Both are plugged into the "Udders" of public funding and both have abused the privilege and that has caused "Udder" disaster and both want to blame the "Udder" guy for the huge problems their greed and lack of responsible management have caused! Incidentally, Bush-Cheney and Big Oil's greed make the Market tycoons look like real Pansies!
These investment folks are completely unwilling to say they messed up and very glad to let others blame others (the current preference is to blame black undeserving homeowners) for the mess they made. This crisis' cause is simple: greed caused many to make bad investments and use the bad value of those bad investments to finance more and more bad investments. The house of cards had to fall some day, and these guys were living in it.
Any other explanation is bullshit. This mess was caused by allegedly-smart people getting greedy and assuming they'd get away with it. They pretty much did, so far.
As I've been saying since before most people knew what "subprime" meant, we wouldn't have had this problem if the ratings agencies had done their jobs.
If investors are going to continue to rely upon the opinions of conflicted, for-profit rating agencies, then the only real solution is to criminalize this behavior. As I've said more times than I can count, civil penalties don't work. The only way to effect change in the corporate world is with criminal penalties: jail time, in real prisons, not a "time out" in some minimum security country club.
I've never understood why if you steal grandma's purse you go to prison, but if you steal her pension you get a bonus and a promotion.
Once they figured out how to insure/hedge against any losses on any assets of any quality then it doesn't matter any more -- they're just gonna pass on all losses to some other sucker(s).
Insure toxic mortgages with a CDS and why should a mortgage company ever worry about whether foreclosure should occur? They're covered.
Insure CDOs against failure and why should you ever worry about whether they're AAA or B rated? You're covered.
It's a system where there's no failure for Wall Street firms because all losses drop to Main Street or the 'too big to fail' firms which are backed by the government.
It needs change.
Vote for Obama-Biden!
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