Posts Tagged ‘rating agencies’

Where credit ain’t due: The rating agencies

22 June 2009

For once, I agree wholeheartedly with a Wall Street Journal editorial.  (OK, I could do without the mixed sports metaphor in the title (“A Triple-A Punt.” How bush league).  The piece raps the Obama Administration’s new financial reform plan for giving the credit rating agencies a free pass.  Some key excerpts:

‘The government-anointed judges of risk at Standard & Poor’s, Moody’s and Fitch inflicted upon investors the AAA-rated subprime mortgage-backed security. They also inflicted upon the world’s nest eggs the even more opaque AAA-rated collateralized debt obligation (CDO). Without the ratings agency seal of approval — required by SEC, Federal Reserve and state regulation for many institutional investors — it would have been nearly impossible to market the structured financial products at the heart of the crisis. Yet Team Obama suggests only that regulators reduce the agencies’ favored role “wherever possible.”. . .


Michael Lewis on the financial mess

5 January 2009

Great op-ed by Michael Lewis and David Einhorn, “The End of the Financial World as We Know It,” in Sunday’s New York Times.  Epic, too — two full newspaper pages.  I’ve been a big Michael Lewis fan ever since Liar’s Poker, but this is in a different category — not breezy and funny as usual, but serious and long on specifics.  Einhorn is a president of a hedge fund, so the relative wonkiness of the piece likely reflects his contribution.

Some highlights from the first half:

“Americans enter the New Year in a strange new role: financial lunatics.

“… the collapse of our financial system has inspired not merely a national but a global crisis of confidence.  Good God, the world seems to be saying, if they don’t know what they are doing with money, who does?….

“The instinct to avoid short-term political heat is part of the problem; anything the S.E.C. does to roil the markets, or reduce the share price of any given company, also roils the careers of the people who run the S.E.C. Thus it seldom penalizes serious corporate and management malfeasance — out of some misguided notion that to do so would cause stock prices to fall, shareholders to suffer and confidence to be undermined. Preserving confidence, even when that confidence is false, has been near the top of the S.E.C.’s agenda.

“It’s not hard to see why the S.E.C. behaves as it does. If you work for the enforcement division of the S.E.C. you probably know in the back of your mind, and in the front too, that if you maintain good relations with Wall Street you might soon be paid huge sums of money to be employed by it.”

The first half also tells “the strange story of Harry Markopolos,” an officer at a Boston investment management company who blew the whistle on Bernard Madoff’s Ponzi scheme for nine years beginning in 1999 with repeated communications to the S.E.C. that got ignored.   (Lewis and Einhorn tout Markopolos as a natural for the S.E.C.’s next Chief of Enforcement.  If only.)