Why hasn't somebody sued the hell out of the credit rating agencies?

[MojoMan]

In April 2011, the Senate found S&P and Moody's complicit in bringing about the 2008 financial crisis.

 

Can't investors go after these guys civilly?

 

Do they have some clause in their contracts that releases them from liability? I can see that anyone can have poor judgment from time to time but this was a lack of due diligence for which they were richly rewarded.

 

http://www.google.com/url?sa=t&source=...Hiw&cad=rja

[wiegie]

I'm not sure if they can be sued--but I'd like to see someone try--I definitely do agree that the BS ratings issued by the agencies were pretty central in the financial crisis.

[Fatman]

If you believe The Big Short, the ratings agencies were a tool for financial institutions and a complete joke. The downgrade is nothing but sensationalism.

[Pope Flick]

If you believe The Big Short, the ratings agencies were a tool for financial institutions and a complete joke. The downgrade is nothing but sensationalism.

 

 

I'd say due to the fact that the downgrade was given by some of the people who created the whole mess to begin with, it's time to round em up and shoot em all before they do any more damage.

[Ursa Majoris]

I'd say due to the fact that the downgrade was given by some of the people who created the whole mess to begin with, it's time to round em up and shoot em all before they do any more damage.

+ infinity

[millerx]

In April 2011, the Senate found S&P and Moody's complicit in bringing about the 2008 financial crisis.

 

Can't investors go after these guys civilly?

 

Do they have some clause in their contracts that releases them from liability? I can see that anyone can have poor judgment from time to time but this was a lack of due diligence for which they were richly rewarded.

 

http://www.google.com/url?sa=t&source=...Hiw&cad=rja

Can you encapsulate this link into what you gleaned from the 600+ pages of it? I don't have time to read that much info to base whether your opinion is accurate or not. Maybe some bullet points and paraphrasing would make it easier for the rest of us. Thanks.

Edited August 7, 2011 by millerx

[The Holy Roller]

+ infinity

 

..and beyond...

 

What a joke they are.

[Clubfoothead]

Can't investors go after these guys civilly?

 

Civil? Treason is a capital offense.

[MojoMan]

Can you encapsulate this link into what you gleaned from the 600+ pages of it? I don't have time to read that much info to base whether your opinion is accurate or not. Maybe some bullet points and paraphrasing would make it easier for the rest of us. Thanks.

 

You don't have to read 600+ pages Einstein.

 

You merely go to the Table of Contents and 1 Executive Summary and in Overview it says that Case 3 is Moody's and Standard and Poor's. Not too tough to figger out.

 

For those without the capacity to navigate a Table of Contents, here's what the Executive Summary said.

 

The next chapter examines how inflated credit ratings contributed to the financial crisis

by masking the true risk of many mortgage related securities. Using case studies involving

Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Financial Services LLC

(S&P), the nation’s two largest credit rating agencies, the Subcommittee identified multiple

problems responsible for the inaccurate ratings, including conflicts of interest that placed

achieving market share and increased revenues ahead of ensuring accurate ratings.

 

Between 2004 and 2007, Moody’s and S&P issued credit ratings for tens of thousands of

U.S. residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO).

Taking in increasing revenue from Wall Street firms, Moody’s and S&P issued AAA and other

investment grade credit ratings for the vast majority of those RMBS and CDO securities,

deeming them safe investments even though many relied on high risk home loans.1

In late 2006, high risk mortgages began incurring delinquencies and defaults at an alarming rate.

Despite signs of a deteriorating mortgage market, Moody’s and S&P continued for six months to

issue investment grade ratings for numerous RMBS and CDO securities.

 

Then, in July 2007, as mortgage delinquencies intensified and RMBS and CDO securities

began incurring losses, both companies abruptly reversed course and began downgrading at

record numbers hundreds and then thousands of their RMBS and CDO ratings, some less than a

year old. Investors like banks, pension funds, and insurance companies, who are by rule barred

from owning low rated securities, were forced to sell off their downgraded RMBS and CDO

holdings, because they had lost their investment grade status. RMBS and CDO securities held

by financial firms lost much of their value, and new securitizations were unable to find investors.

The subprime RMBS market initially froze and then collapsed, leaving investors and financial

firms around the world holding unmarketable subprime RMBS securities that were plummeting

in value. A few months later, the CDO market collapsed as well.

 

Traditionally, investments holding AAA ratings have had a less than 1% probability of

incurring defaults. But in 2007, the vast majority of RMBS and CDO securities with AAA

ratings incurred substantial losses; some failed outright. Analysts have determined that over

90% of the AAA ratings given to subprime RMBS securities originated in 2006 and 2007 were

later downgraded by the credit rating agencies to junk status. In the case of Long Beach, 75 out

of 75 AAA rated Long Beach securities issued in 2006, were later downgraded to junk status,

defaulted, or withdrawn. Investors and financial institutions holding the AAA rated securities

lost significant value. Those widespread losses led, in turn, to a loss of investor confidence in

the value of the AAA rating, in the holdings of major U.S. financial institutions, and even in the

viability of U.S. financial markets.

 

Inaccurate AAA credit ratings introduced risk into the U.S. financial system and

constituted a key cause of the financial crisis. In addition, the July mass downgrades, which

were unprecedented in number and scope, precipitated the collapse of the RMBS and CDO

secondary markets, and perhaps more than any other single event triggered the beginning of the

financial crisis.

 

The Subcommittee’s investigation uncovered a host of factors responsible for the

inaccurate credit ratings issued by Moody’s and S&P. One significant cause was the inherent

conflict of interest arising from the system used to pay for credit ratings. Credit rating agencies

were paid by the Wall Street firms that sought their ratings and profited from the financial

products being rated. Under this “issuer pays” model, the rating agencies were dependent upon

those Wall Street firms to bring them business, and were vulnerable to threats that the firms

would take their business elsewhere if they did not get the ratings they wanted. The rating

agencies weakened their standards as each competed to provide the most favorable rating to win

business and greater market share. The result was a race to the bottom.

 

Additional factors responsible for the inaccurate ratings include rating models that failed

to include relevant mortgage performance data; unclear and subjective criteria used to produce

ratings; a failure to apply updated rating models to existing rated transactions; and a failure to

provide adequate staffing to perform rating and surveillance services, despite record revenues.

Compounding these problems were federal regulations that required the purchase of investment

grade securities by banks and others, which created pressure on the credit rating agencies to issue

investment grade ratings. While these federal regulations were intended to help investors stay

away from unsafe securities, they had the opposite effect when the AAA ratings proved

inaccurate.

 

Evidence gathered by the Subcommittee shows that the credit rating agencies were aware

of problems in the mortgage market, including an unsustainable rise in housing prices, the high

risk nature of the loans being issued, lax lending standards, and rampant mortgage fraud. Instead

of using this information to temper their ratings, the firms continued to issue a high volume of

investment grade ratings for mortgage backed securities. If the credit rating agencies had issued

ratings that accurately reflected the increasing risk in the RMBS and CDO markets and

appropriately adjusted existing ratings in those markets, they might have discouraged investors

from purchasing high risk RMBS and CDO securities, and slowed the pace of securitizations.

 

It was not in the short term economic interest of either Moody’s or S&P, however, to

provide accurate credit ratings for high risk RMBS and CDO securities, because doing so would

have hurt their own revenues. Instead, the credit rating agencies’ profits became increasingly

reliant on the fees generated by issuing a large volume of structured finance ratings. In the end,

Moody’s and S&P provided AAA ratings to tens of thousands of high risk RMBS and CDO

securities and then, when those products began to incur losses, issued mass downgrades that

shocked the financial markets, hammered the value of the mortgage related securities, and helped

trigger the financial crisis.

[cliaz]

I love how everyone is quick to point the fingers at entities like S&P

 

Typical Fleabars

[bpwallace49]

You don't have to read 600+ pages Einstein.

 

You merely go to the Table of Contents and 1 Executive Summary and in Overview it says that Case 3 is Moody's and Standard and Poor's. Not too tough to figger out.

 

For those without the capacity to navigate a Table of Contents, here's what the Executive Summary said.

 

The next chapter examines how inflated credit ratings contributed to the financial crisis

by masking the true risk of many mortgage related securities. Using case studies involving

Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Financial Services LLC

(S&P), the nation’s two largest credit rating agencies, the Subcommittee identified multiple

problems responsible for the inaccurate ratings, including conflicts of interest that placed

achieving market share and increased revenues ahead of ensuring accurate ratings.

 

Between 2004 and 2007, Moody’s and S&P issued credit ratings for tens of thousands of

U.S. residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO).

Taking in increasing revenue from Wall Street firms, Moody’s and S&P issued AAA and other

investment grade credit ratings for the vast majority of those RMBS and CDO securities,

deeming them safe investments even though many relied on high risk home loans.1

In late 2006, high risk mortgages began incurring delinquencies and defaults at an alarming rate.

Despite signs of a deteriorating mortgage market, Moody’s and S&P continued for six months to

issue investment grade ratings for numerous RMBS and CDO securities.

 

Then, in July 2007, as mortgage delinquencies intensified and RMBS and CDO securities

began incurring losses, both companies abruptly reversed course and began downgrading at

record numbers hundreds and then thousands of their RMBS and CDO ratings, some less than a

year old. Investors like banks, pension funds, and insurance companies, who are by rule barred

from owning low rated securities, were forced to sell off their downgraded RMBS and CDO

holdings, because they had lost their investment grade status. RMBS and CDO securities held

by financial firms lost much of their value, and new securitizations were unable to find investors.

The subprime RMBS market initially froze and then collapsed, leaving investors and financial

firms around the world holding unmarketable subprime RMBS securities that were plummeting

in value. A few months later, the CDO market collapsed as well.

 

Traditionally, investments holding AAA ratings have had a less than 1% probability of

incurring defaults. But in 2007, the vast majority of RMBS and CDO securities with AAA

ratings incurred substantial losses; some failed outright. Analysts have determined that over

90% of the AAA ratings given to subprime RMBS securities originated in 2006 and 2007 were

later downgraded by the credit rating agencies to junk status. In the case of Long Beach, 75 out

of 75 AAA rated Long Beach securities issued in 2006, were later downgraded to junk status,

defaulted, or withdrawn. Investors and financial institutions holding the AAA rated securities

lost significant value. Those widespread losses led, in turn, to a loss of investor confidence in

the value of the AAA rating, in the holdings of major U.S. financial institutions, and even in the

viability of U.S. financial markets.

 

Inaccurate AAA credit ratings introduced risk into the U.S. financial system and

constituted a key cause of the financial crisis. In addition, the July mass downgrades, which

were unprecedented in number and scope, precipitated the collapse of the RMBS and CDO

secondary markets, and perhaps more than any other single event triggered the beginning of the

financial crisis.

 

The Subcommittee’s investigation uncovered a host of factors responsible for the

inaccurate credit ratings issued by Moody’s and S&P. One significant cause was the inherent

conflict of interest arising from the system used to pay for credit ratings. Credit rating agencies

were paid by the Wall Street firms that sought their ratings and profited from the financial

products being rated. Under this “issuer pays” model, the rating agencies were dependent upon

those Wall Street firms to bring them business, and were vulnerable to threats that the firms

would take their business elsewhere if they did not get the ratings they wanted. The rating

agencies weakened their standards as each competed to provide the most favorable rating to win

business and greater market share. The result was a race to the bottom.

 

Additional factors responsible for the inaccurate ratings include rating models that failed

to include relevant mortgage performance data; unclear and subjective criteria used to produce

ratings; a failure to apply updated rating models to existing rated transactions; and a failure to

provide adequate staffing to perform rating and surveillance services, despite record revenues.

Compounding these problems were federal regulations that required the purchase of investment

grade securities by banks and others, which created pressure on the credit rating agencies to issue

investment grade ratings. While these federal regulations were intended to help investors stay

away from unsafe securities, they had the opposite effect when the AAA ratings proved

inaccurate.

 

Evidence gathered by the Subcommittee shows that the credit rating agencies were aware

of problems in the mortgage market, including an unsustainable rise in housing prices, the high

risk nature of the loans being issued, lax lending standards, and rampant mortgage fraud. Instead

of using this information to temper their ratings, the firms continued to issue a high volume of

investment grade ratings for mortgage backed securities. If the credit rating agencies had issued

ratings that accurately reflected the increasing risk in the RMBS and CDO markets and

appropriately adjusted existing ratings in those markets, they might have discouraged investors

from purchasing high risk RMBS and CDO securities, and slowed the pace of securitizations.

 

It was not in the short term economic interest of either Moody’s or S&P, however, to

provide accurate credit ratings for high risk RMBS and CDO securities, because doing so would

have hurt their own revenues. Instead, the credit rating agencies’ profits became increasingly

reliant on the fees generated by issuing a large volume of structured finance ratings. In the end,

Moody’s and S&P provided AAA ratings to tens of thousands of high risk RMBS and CDO

securities and then, when those products began to incur losses, issued mass downgrades that

shocked the financial markets, hammered the value of the mortgage related securities, and helped

trigger the financial crisis.

 

This is still too long. Can you please summarize in a 4 sentence executive summary, TIA

[MojoMan]

This is still too long. Can you please summarize in a 4 sentence executive summary, TIA

 

Be glad to.

 

Sentence 1. From 200? to 2006 there was a lot of bull$hit going on in the real estate market that was securitized.

Sentence 2. Standard and Poor's was responsible for rating a lot of those securities.

Sentence 3. Standard and Poor's ignored their due diligence obligation and an obvious conflict of interest and rated junk securities AAA.

Sentence 4. US gummint recognizes S&P's complicity on bringing about the 2008-present financial catastrophe.

[bpwallace49]

Be glad to.

 

Sentence 1. From 200? to 2006 there was a lot of bull$hit going on in the real estate market that was securitized.

Sentence 2. Standard and Poor's was responsible for rating a lot of those securities.

Sentence 3. Standard and Poor's ignored their due diligence obligation and an obvious conflict of interest and rated junk securities AAA.

Sentence 4. US gummint recognizes S&P's complicity on bringing about the 2008-present financial catastrophe.

 

Now the words are too long and complicated.

 

Can you summarize it in a 2-3 minute interpretative dance routine? TIA

 

Posting it on youtube would be best.

[MojoMan]

Now the words are too long and complicated.

 

Can you summarize it in a 2-3 minute interpretative dance routine? TIA

 

Posting it on youtube would be best.

 

Before this interaction, I was always curious why many Huddlers found you to be a d0uche.

 

Now i know for myself.

 

Thanks.

[Ursa Majoris]

I love how everyone is quick to point the fingers at entities like S&P

 

Typical Fleabars

Defend the indefensible if you must but I'd rather point guns at them than fingers.

[Pope Flick]

I love how everyone is quick to point the fingers at entities like S&P

 

Typical Fleabars

 

 

After the 2008 debacle, how/why do you consider them credible? They clearly can't rate for squat, and give it out to the highest bidder basically.

[caddyman]

Before this interaction, I was always curious why many Huddlers found you to be a d0uche.

 

Now i know for myself.

 

Thanks.

 

[bpwallace49]

Before this interaction, I was always curious why many Huddlers found you to be a d0uche.

 

Now i know for myself.

 

Thanks.

 

Someone isnt very happy today . . . . lighten up Francis. It was a joke.

[westvirginia]

 

Someone isnt very happy today . . . . lighten up Francis. It was a joke.

 

Oh, he knew what you were before this. He just needed you to post something at him before he felt justified in telling you so...

[Ursa Majoris]

Anyone think this S&P downgrade is political? The other two "rating agencies" haven't followed suit (yet) so I'm wondering if this gang of finance company sock puppets have been told to do this.

[Brentastic]

Now the words are too long and complicated.

 

Can you summarize it in a 2-3 minute interpretative dance routine? TIA

 

Posting it on youtube would be best.

[tazinib1]

 

typical dumb ass followship.

 

 

Hey smartypants..name me the worst political assembly ever elected in the history of this great country of ours. I'll give you a hint...he and it are worse than your idle Bush.

Edited August 9, 2011 by tazinib1

[The Holy Roller]

Be glad to.

 

Sentence 1. From 200? to 2006 there was a lot of bull$hit going on in the real estate market that was securitized.

Sentence 2. Standard and Poor's was responsible for rating a lot of those securities.

Sentence 3. Standard and Poor's ignored their due diligence obligation and an obvious conflict of interest and rated junk securities AAA.

Sentence 4. US gummint recognizes S&P's complicity on bringing about the 2008-present financial catastrophe.

 

[Ursa Majoris]

Anyone think this S&P downgrade is political? The other two "rating agencies" haven't followed suit (yet) so I'm wondering if this gang of finance company sock puppets have been told to do this.

Anyone?

[millerx]

Anyone?

No.