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  #11  
Old 12-08-2009, 11:01 AM
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http://www.nytimes.com/2009/12/08/bu...ings.html?_r=2

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When the financial crisis began, few players on Wall Street looked more ripe for reform than the Big Three credit rating agencies.

It wasn’t just that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, played a crucial role in the epochal housing market collapse, affixing their most laudatory grades to billions of dollars worth of bonds that went bad in the subprime crisis.

It was the near universal agreement that potential conflicts were embedded in the ratings model. For years, banks and other issuers have paid rating agencies to appraise securities — a bit like a restaurant paying a critic to review its food, and only if the verdict is highly favorable.

So as Washington rewrites the rules of Wall Street, how is the overhaul of the Big Three coming? It isn’t, finance experts say.

“What you see in these bills are Botox shots,” says Joseph A. Grundfest, a professor of securities law at Stanford Law School. “For a little while, everyone is going to be frozen into a grin, and then the shots are going to wear off.”
more at link

Investor beware.
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  #12  
Old 12-23-2009, 12:32 PM
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http://online.wsj.com/article/SB1000...503610564.html

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The House-passed rewrite of financial regulation is a disappointment for investors and taxpayers. But one portion of the bill represents significant reform—and a vast improvement from an early draft we described in October.

Congressmen Barney Frank and Paul Kanjorski (D., Pa.) have produced legislation that would likely end the credit-ratings racket enjoyed by Standard & Poor's, Moody's and Fitch. During the housing bubble, these government-anointed judges of credit risk slapped their triple-A ratings on billions of dollars of mortgage-backed securities. The consequences for investors were catastrophic.

The Frank-Kanjorski provision that recently passed the House not only eliminates all laws that require the use of these "Nationally Recognized Statistical Ratings Organizations." The bill also instructs all the major financial regulators to remove such requirements from their rules. This is a subtle but enormously important change from the October draft, because most of the federal edicts that guaranteed profits for S&P and the gang were contained in agency rules, not laws.

The House-passed bill also repeals an exemption that credit-raters have enjoyed from the Securities and Exchange Commission's Regulation Fair Disclosure. No longer will they have access to corporate information that is denied to average investors.
Whoa. Well, I wonder if this will make it all the way through to law. Interesting.
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  #13  
Old 12-27-2009, 02:02 PM
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From the life insurance perspective, rating agencies are useless as a predictor of the stability of insurance companies.

Here's my take:
- companies can game the system to a certain extent
- the ratings are not indicative of the stability of a company. The rating agencies can't really tell if a company is stable. Heck, even actuaries can't tell if a company is stable. Can you?
- None of these ratings matter a whit when it really matters - 20-30 years in the future. You buy a big company, buy a small company, buy a b rated company, buy an a rated company, and there is exactly nothing these ratings companies provide that gives us an insight into the future stability of a company down the road. It's not hard to buy an AAA+++ company today that in 20 years completely blows.

I'd buy stock in Santa Claus before I'd buy stock in company that performs life insurance company ratings.

(A while ago I had suggested that I might consider reviewing rating company's performance over an extended period of time - see how many insurers had been top rated in the past before closing their doors. I had a number of people strongly suggest that such a report would not be good for my business. ).
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  #14  
Old 12-27-2009, 07:47 PM
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Heck, can the rating agencies do a good job rating government bonds?
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  #15  
Old 12-28-2009, 11:52 AM
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Default PIMCO chosen to rate by NAIC

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Heck, can the rating agencies do a good job rating government bonds?
In Bill Gross we trust.
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Old 09-14-2012, 04:13 PM
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Heck, can the rating agencies do a good job rating government bonds?
hmmm
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  #17  
Old 02-05-2013, 10:25 AM
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S&P being sued by federal government...

http://online.wsj.com/article/SB1000...article_forsub

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The Justice Department sued Standard & Poor's Ratings Services late Monday, alleging the firm ignored its own standards to rate mortgage bonds that imploded in the financial crisis and cost investors billions, according to people familiar with the matter.

The civil charges by U.S . Attorney General Eric Holder against the New York company, one of the bond-rating industry's three giants, are the first federal enforcement action against a credit-rating firm over the crisis. Several state attorneys general are likely to join.

The government suit would be "entirely without factual or legal merit," said S&P in a statement earlier Monday, denying wrongdoing.

....
S&P said the government's allegations stem from S&P 's rating of collateralized debt obligations, or CDOs, issued in 2007 that included bundles of subprime mortgages.

The government is targeting about 30 of those deals, which plummeted in value soon after being sold to investors, a person familiar with the matter said.

.....
In 2011, S&P , Moody's and the Fitch Ratings unit of Fimalac SA and Hearst Corp. were accused by a Senate committee of giving overly rosy ratings to CDOs and then causing an "economic earthquake" by downgrading hundreds of the bonds when the scale of the housing collapse became clear.

S&P suggested Monday it was being unfairly singled out. The CDOs under scrutiny were given the same high ratings from an S&P rival, the firm said. S&P added that it faced charges for not predicting the full extent of the housing bust, "despite [the] failure of virtually everyone to do so."

Ah, but I bet that S&P rival hasn't downgraded U.S. sovereign debt, now has it.

http://online.wsj.com/article/SB1000...googlenews_wsj


Quote:
On March 19, 2007, as the U.S. housing market weakened, an analyst at Standard & Poor's Ratings Service sent out some song lyrics to colleagues, set to the tune of the Talking Heads 1980s song "Burning Down the House."

"Housing market went softer/Cooling down/Strong market is now much weaker/Subprime is boi-ling o-ver/Bringing down the house."

The song lyrics are among the U.S. government's allegations against S&P in a 128-page lawsuit filed late Monday in a U.S. District Court in Los Angeles. The suit alleges that the largest U.S. rating firm "falsely" represented that crisis-era credit ratings on complex securities "were objective, independent" and "uninfluenced by any conflicts of interest."

....
S&P and other firms have long fought lawsuits targeting the quality of their ratings by citing the First Amendment and contending that the ratings are an opinion. In its suit, the Justice Department lawsuit tries to get around that argument by dusting off a law from the savings-and-loan crisis that imposes a relatively lower burden of proof.

The federal government is suing S&P for three types of fraud under that law: mail fraud, wire fraud and financial-institution fraud. The suit doesn't indicate how much the U.S. is seeking in damages.

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  #18  
Old 02-05-2013, 04:49 PM
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so I'm assuming Moody's and Fitch did something completely different than S&P with respect to MBS ratings.
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Old 02-05-2013, 04:56 PM
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To pull out one item:

Quote:
The CDOs under scrutiny were given the same high ratings from an S&P rival, the firm said.
The main difference is that said S&P rival did not downgrade the U.S. Or maybe they were honestly dumb. There are all sorts of possibilities about why said rival isn't being sued.

=cough=
http://www.thestreet.com/story/11082...gs-report.html

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S&P, Moody's Inflated MBS Ratings: Report
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  #20  
Old 02-06-2013, 12:42 PM
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Default Maybe union type tactic

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Ah, but I bet that S&P rival hasn't downgraded U.S. sovereign debt, now has it.
The UAW doesn't bargain with all GM, Ford, and Chrysler all at once. Perhaps it is a domino theory. One after the other.
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