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  #21  
Old 02-07-2013, 05:18 PM
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Originally Posted by California View Post
The UAW doesn't bargain with all GM, Ford, and Chrysler all at once. Perhaps it is a domino theory. One after the other.
Well, it could keep Moody's in line, in terms of not threatening to change the U.S. credit rating
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  #22  
Old 02-07-2013, 05:21 PM
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Originally Posted by tenthring View Post
The credit rating agencies are an unattural creation. The incentive structure was actually way better before the government got involved in the 70s.
Isn't that always the case? Government involvement, even with the best intentions, mucks up things worse than if the government stayed away and let markets do what markets do best.
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Old 02-08-2013, 09:53 AM
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http://www.bloomberg.com/news/2013-0...l?alcmpid=view

Quote:
S&P Lawsuit Portrays CDO Sellers as Duped Victims

Oh, the poor suckers at Citigroup Inc. and Bank of America Corp., fooled about the stench of their own garbage by those sneaky credit raters at Standard & Poor’s.
The U.S. Justice Department made some peculiar allegations in its lawsuit this week against S&P and its parent, McGraw-Hill Cos. According to the government, Citigroup was defrauded by S&P credit ratings on subprime mortgage bonds that Citigroup itself created and sold. Bank of America, too, allegedly was defrauded by S&P in the same way.
....
For nine of the CDOs, the government’s complaint listed Citigroup as the harmed investor -- without mentioning that Citigroup’s investment-banking division had managed the bonds’ offerings. The complaint identified Bank of America as the defrauded CDO investor in two instances, also without mentioning that its securities unit underwrote those bonds.

It’s a novel concept. If only S&P had given honest opinions to Citigroup and Bank of America -- which were paying S&P millions of dollars for ratings -- then the banks would have realized they were buying ticking time bombs from themselves. And who knows? Maybe they could have found some other hapless chumps to immolate instead, if S&P had told them in time.
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  #24  
Old 01-24-2014, 01:31 PM
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http://uk.reuters.com/article/2014/0...0KV1O120140121

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Jan 21 (Reuters) - Former U.S. Treasury Secretary Timothy Geithner angrily warned the chairman of Standard & Poor's parent that the rating agency would be held accountable for its 2011 decision to strip the United States of its coveted "triple-A" rating, a new court filing shows.

Harold McGraw, the chairman of McGraw-Hill Financial Inc , made the statement in a declaration filed by S&P on Monday, as it defends against the government's $5 billion fraud lawsuit over its rating practices prior to the 2008 financial crisis.

McGraw said he returned a call from Geithner on Aug. 8, 2011, three days after S&P cut the U.S. credit rating to "AA-plus," and that Geithner told him "you are accountable" for an alleged "huge error" in S&P's work.

"He said that 'you have done an enormous disservice to yourselves and to your country,'" and that S&P's conduct would be "looked at very carefully," McGraw said. "Such behavior could not occur, he said, without a response from the government."

.....
The U.S. Department of Justice, which brought the civil fraud lawsuit, did not immediately respond to a request for comment. New York Fed spokesman Jack Gutt declined to comment.

In its lawsuit, the U.S. government accused S&P of hurting banks and credit unions by inflating ratings to win more fees from issuers, and then failing to downgrade debt backed by deteriorating mortgage-backed securities fast enough.

S&P has claimed that the lawsuit was filed in retaliation for the downgrade, and should be dismissed. Its main rating agency rivals, Moody's Investors Service and Fitch Ratings, were not sued.

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  #25  
Old 06-16-2014, 04:17 PM
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http://www.nytimes.com/2014/06/15/bu...ngs-firms.html

Quote:
Pension fund investors lost billions of dollars trusting the rosy credit ratings stamped on troubled mortgage securities before the 2008 crisis. In its aftermath, they have spent years and many dollars suing Moody’s and Standard & Poor’s, the main purveyors of those dubious grades.

That these funds and other plaintiffs are trying to hold the ratings agencies to account is a good thing.

And yet, there’s a mystifying disconnect in some of these disputes. On one hand, pension funds or state officials are telling the courts that Moody’s and S.&P. were negligent and their ratings marred by flawed methods and conflicts of interest. On the other hand, when the professionals who manage state funds buy bonds or mortgage securities, their investment policies require them to rely on the assessments of — you guessed it — the very same ratings agencies.

.....
Mr. Kelleher suggested that ratings agencies be held liable for malpractice as accounting firms and other experts are. Moody’s and S.&P. contend that the grades they give bonds and securities are opinions that carry free-speech protections. As such, they are not subject to legal liability. Some courts, alas, have accepted this argument.

Investors could also effect change by relying on ratings firms that were not part of the problem in 2008.

Even though 10 ratings agencies of varying sizes are currently recognized by the S.E.C., the market is still dominated by Moody’s, S.&P. and Fitch. The S.E.C.’s 2013 report to Congress shows that in 2012 the big three controlled 94.7 percent of their industry’s total revenue, up from 94 percent in 2011.

Such a share might decline if pension fund investors either did their own credit analysis or stopped relying solely on the big three for ratings. Either action could have a much more meaningful impact than their lawsuits by eliminating the agencies’ hold on determining creditworthiness.

Even if they prevail in the courts, investors are unlikely to recover more than a small fraction of losses they have incurred. And payments made by the ratings agencies to resolve these matters would amount to a rounding error on their financial positions.

The continued reliance on agencies that failed so many investors with their ratings might not be a problem if securities regulators had forced the raters to overhaul their operations. Among the problems: Companies pay the agencies to grade the securities, and that sets up a potential conflict of interest. States, too, pay the agencies to assign grades to their own debt.

Still, little has been done.

All three agencies have said in the past that they can manage these conflicts and that they have tightened their procedures to eliminate the potential for another fiasco involving overly optimistic ratings.

Nevertheless, the Dodd-Frank law of 2010 directed the S.E.C. to increase its oversight of these agencies and to issue new rules. The commission proposed rules three years ago that are still not final.

It’s passing strange for large investors to require that their holdings carry ratings from the very firms whose grades, they say in court filings, were negligent. But what’s even worse is that these investors are helping to maintain the troubling status quo.
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  #26  
Old 01-11-2016, 05:56 PM
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http://www.nytimes.com/2016/01/10/bu...=business&_r=2

Quote:
Ratings Agencies Still Coming Up Short, Years After Crisis

The mistakes that led to the 2008 mortgage crisis can’t happen again, right?

Not so fast, particularly if you’re talking about credit ratings agencies like Moody’s Investors Service and Standard & Poor’s. Eight years after these companies were found to have put profits ahead of principle when they assigned high grades to low-quality debt securities, some of the same dubious practices continue to infect their operations. That’s the message in the most recent regulatory report on the companies from the Securities and Exchange Commission.

The credit ratings agencies played an enormous role in generating billions of dollars in losses during the debacle. Internal emails that emerged in congressional investigations were especially revealing of the problems at these companies. “We rate every deal,” one Standard & Poor’s employee famously wrote. “It could be structured by cows and we would rate it.”

There’s an entertaining — and illuminating — scene in the movie “The Big Short” that perfectly captures the pathology. As a Standard & Poor’s employee played by Melissa Leo replies when asked why the ratings agency didn’t insist on higher standards: “They’ll just go to Moody’s.”

......
Ten credit ratings agencies are currently registered and operating in the United States. As their overseer, the S.E.C. must conduct examinations of them every year and issue an annual report of its findings.

The most recent such report came out on Dec. 28, easily missed in the holiday crush. But its contents are a potent reminder that absent strong enforcement of the rules, questionable behavior is not likely to change.

The S.E.C. report doesn’t identify which agencies ran afoul of what rules. That’s unfortunate. But it does separate the companies into two groups based on size. So when the regulator describes a problem at one of the “larger” credit ratings agencies, you know it means one of the big three — Fitch Ratings, Moody’s or Standard & Poor’s.

Some of the problems uncovered by the S.E.C. are frighteningly basic. For example, two of the larger companies “failed to adhere to their ratings policies and procedures, methodologies, or criteria, or to properly apply quantitative models.” These failures occurred on numerous occasions, the report noted.

Errors seem common. Because of a coding mistake, a structured finance deal made by one larger ratings agency didn’t reflect its actual terms. It took some time for this error to be detected and when it was, the transaction’s rating took a substantial hit.

In another example, a larger ratings agency employee noticed an error in the calculations used to determine certain ongoing ratings, but in subsequent publications, the company disclosed neither the mistake nor its implications. This ratings agency also inaccurately described the methodology it used to determine some of its official grades, the S.E.C. said.

Then there were the analysts at one larger ratings agency who learned of flaws in outside models used to determine ratings. But no one at the company assessed the impact of the errors or told others about them as required under its procedures. The S.E.C. also identified instances where substantive statements made by this agency in its rating publications directly contradicted its internal rating records.

Even more alarming, policies and procedures at one larger credit ratings agency did not prevent “prohibited unfair, coercive or abusive practices,” the report found. As a result, the agency gave an unsolicited rating to an issuer that was “motivated at least in part by market-share considerations.” Such a practice would allow an agency to gain an issuer’s business by offering a better rating than a competitor.


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Old 01-14-2017, 10:40 AM
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http://www.reuters.com/article/us-mo...-idUSKBN14X2LP

Quote:
Moody's pays $864 million to U.S., states over pre-crisis ratings

Moody's Corp (MCO.N) has agreed to pay nearly $864 million to settle with U.S. federal and state authorities over its ratings of risky mortgage securities in the run-up to the 2008 financial crisis, the U.S. Department of Justice said on Friday.

The credit rating agency reached the deal with the Justice Department, 21 states and the District of Columbia, resolving allegations that the firm contributed to the worst financial crisis since the Great Depression, the department said in a statement.

"Moody's failed to adhere to its own credit-rating standards and fell short on its pledge of transparency in the run-up to the Great Recession," Principal Deputy Associate Attorney General Bill Baer said in the statement.

S&P Global's (SPGI.N) Standard & Poor's entered into a similar accord in 2015 paying out $1.375 billion. Standard and Poor's is the world's largest ratings firm, followed by Moody's.

Moody's said it would pay a $437.5 million penalty to the Justice Department, and the remaining $426.3 million would be split among the states and Washington, D.C.

As part of its settlement, Moody's also agreed to measures designed to ensure the integrity of credit ratings going forward, including keeping analytic employees out of commercial-related discussions.

The rating agency's chief executive also must certify compliance with the measures for at least five years.
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Old 05-16-2018, 02:37 PM
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https://www.nber.org/papers/w24509

Quote:
Mortgage-Backed Securities and the Financial Crisis of 2008: a Post Mortem
Juan Ospina, Harald Uhlig
NBER Working Paper No. 24509
Issued in April 2018
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics
We examine the payoff performance, up to the end of 2013, of non-agency residential mortgage-backed securities (RMBS), issued up to 2008. We have created a new and detailed data set on the universe of non-agency residential mortgage backed securities, per carefully assembling source data from Bloomberg and other sources. We compare these payoffs to their ex-ante ratings as well as other characteristics. We establish seven facts. First, the bulk of these securities was rated AAA. Second, AAA securities did ok: on average, their total cumulated losses up to 2013 are 2.3 percent. Third, the subprime AAA-rated segment did particularly well. Fourth, later vintages did worse than earlier vintages, except for subprime AAA securities. Fifth, the bulk of the losses were concentrated on a small share of all securities. Sixth, the misrating for AAA securities was modest. Seventh, controlling for a home price bust, a home price boom was good for the repayment on these securities. Together, these facts provide challenge the conventional narrative, that improper ratings of RMBS were a major factor in the financial crisis of 2008.
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  #29  
Old 05-21-2018, 12:40 PM
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Interesting conclusion(s)...

I have to wonder if they controlled for or quantified benefits of the mortgage assistance programs put in place post 2008-2009, the billions of dollars from UST used to recapitalize banks and mortgage lenders (directly via UST infusion or indirectly via M&A by other banks), and the balance sheet support offered by FRB interest rate and yield curve management during the period in question.
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Old 05-21-2018, 01:46 PM
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You can take a look at their data appendix....

https://www.nber.org/data-appendix/w...20appendix.pdf

They're pretty thorough in showing how they found their data. ...and that it's all based on the bonds themselves, and not on the stuff outside the bonds.

Here's part of the appendices:

Quote:
B Database Description

For this paper we have constructed a database that contains detailed information on a comprehensive
collection of Non-Agency Mortgage Backed Securities. Our database has data for
almost 9,000 MBS deals which translate into 147,606 unique mortgage backed securities issued
between 1987 and 2014. These securities were issued by more than 200 firms and have a notional
amount of $6.1 trillion, out of which 65% was issued between 2004 and 2007. See Table
DA1 for a brief description of the quantities in our data year by year.

....
In this paper we have focused our attention on private residential MBS. These non-agency
MBS make up bulk of our data and are the ones that we restrict our attention to. However,
given the broad search that we have conducted, our full database contains some other securities
including more than 3,400 CMBS with notional amount of $426 billion. In the collection process
some information on Agency MBS was collected. Including the VA (Veteran Affair) loans, which
are partially backed by the Government through the U.S Department of Veteran Affairs, only
about 1% of the bonds in our data are Government-related, which leaves us with 146,000
private-label MBS. It is also worth noting that our data is not a comprehensive collection of
16
CDOs. Finally, about 10% of the data corresponds to re-securitizations, which became more
common after the financial crisis. Table DA2 presents figures on the number of deals, number of
bonds and notional amounts for different classification criteria of the securities in our database.
.....
Many of the variables related to MBS vary over time. For example, one can talk about the
average loan size at issuance or the average loan size at any other point in time; or one can
talk about the credit rating given upon issuance and the current credit rating of a security. For
most variables we were able to obtain the values upon issuance. For some of these variables we
may have gathered also current information (current meaning the value of the variable at the
time we collected the data). For some of these variables the time series information may exist,
for some it may not. We are uncertain about the benefit of the “current” value of a variable
if we do not have access to the time series. We did not collect information on all the existing
time series due to constraints in the amount of information that can be extracted from the data
sources in a given month. If needed, these time series could be potentially obtained.
This was purely a look-back at how these securities performed. But they do acknowledge missing data.
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Last edited by campbell; 05-21-2018 at 01:52 PM..
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