First of all for anyone that has followed any of these pathetic excuses for an independent rating agencies(S&P, Moodys, Fitch) the first thing you would know is there is nothing remotely independent about them. As I peel through this gold mine, which you can read if you click here, you finally get to read first hand testimony of someone whose own conscience and self respect got the best of him, forcing him to resign and then breaks his silence by laying out for the SEC in a 78pages document how destructive and harmful of a role the agency played in the financial crisis and how the conflicts of interest which exist at all parts of the process, still appear to continue to exist today. While it’s no secret the main problem is that their so called “objective ratings model ” which is no more complex than “paying for the rating you desire”, it’s the culture that exists there, and throughout WALL STREET and WASHINGTON DC which is a modicum for all that is wrong with America today. The Big Guys ALWAYS WIN at the expense of the Little Guys like you and me, who have no voice and whose only fighting chance to be protected from predatory and immoral behavior is by our policy makers and regulators who seem to always be asleep at the wheel and tend to turn a blind eye and deaf ears to their friends in high places.
What’s interesting about the timing of all of this is that everyone has been blasting S&P over the past 2 weeks for their so called flawed analysis of US Sovereign Debt Ratings when they downgraded from AAA to AA… It was suggested that the company made critical errors, and had become irrelevant, off base and a threat to the stability of capital markets. I happen to be in the camp that thought, hmm is it possible that after completely screwing up in the housing crisis that S&P reformed itself and maybe found religion. That it took its job as an independent rating agency seriously and going forward it would ensure that its credibility be manifested through an objective process, one that wouldn’t pander to pressure and false conclusions? I mean has anyone begun to question the CBO in all of this, who back in 2001 suggested 10yrs later we would have a 1.5tn Surplus, whereby today we find ourselves not only nowhere near that projection but another 200-300bn higher and with a NEGATIVE SIGN in front of it.
Lastly, this testimony was submitted to the SEC on Aug.8th. On Aug. 7, Uncle Warren Buffett, who most of America, including Barry Sotoro seem to be obsessed with for some reason (as he was a leading cheerleader to congress to bailout Wall Street in the midst of the crisis which essentially was a plea to bailout out himself), claimed that Standard & Poor’s erred when it lowered the U.S. credit rating and reiterated his view that the economy will avoid its second recession in three years. He went on to say that “the US merits a “quadruple A” rating and he doesn’t rely on the views of ratings firms when buying and selling securities.”
Anyone care to guess who is the ###1 shareholder of Moodys??? If you guessed Warrren Buffett you would be right….
So when it comes to having credibility here, especially with respect to the perilous debt situation in the US, who do you believe? Who makes you feel like they are telling the truth?
From Business Insider
Says Ratings Agency Rotten To Core with Conflicts, Corruption, And Greed
by: Henry Blodget
A former senior analyst at Moody’s has gone public with his story of how one of the country’s most important rating agencies is corrupted to the core.
The analyst, William J. Harrington, worked for Moody’s for 11 years, from 1999 until his resignation last year.
From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody’s issued during the housing bubble.
Harrington has made his story public in the form of a 78-page “comment” to the SEC’s proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody’s processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic.
The primary conflict of interest at Moody’s is well known: The company is paid by the same “issuers” (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody’s operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody’s clients the ratings they want, lest the clients fire Moody’s and take their business to other ratings agencies.
Moody’s analysts whose conclusions prevent Moody’s clients from getting what they want, Harrington says, are viewed as “impeding deals” and, thus, harming Moody’s business. These analysts are often transferred, disciplined, “harassed,” or fired.
In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody’s ratings useless at best and harmful at worst.
Harrington believes the SEC’s proposed rules will make the integrity of Moody’s ratings worse, not better. He also believes that Moody’s recent attempts to reform itself are nothing more than a pretty-looking PR campaign.
We’ve included highlights of Harrington’s story below. Here are some key points:
- Moody’s ratings often do not reflect its analysts’ private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings–and then vote with management to give the securities the higher ratings that issuer clients want.
- Moody’s management and “compliance” officers do everything possible to make issuer clients happy–and they view analysts who do not do the same as “troublesome.” Management employs a variety of tactics to transform these troublesome analysts into “pliant corporate citizens” who have Moody’s best interests at heart.
- Moody’s product managers participate in–and vote on–ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody’s business.
- At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management’s emphasis on giving issuers what they wanted, skipped the hearings altogether.
Harrington’s story at times reads like score-settling: The constant conflicts and pressures at Moody’s clearly grated on him, especially as it became ever clearer that his only incentive not to “cave” to an issuer’s every demand was his own self-respect.
But Harrington’s story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government anoints organizations as deeply conflicted as Moody’s with the power to determine sanctioned bond ratings is untenable. And the SEC’s proposed rule changes won’t fix a thing.
Harrington’s story is startling, both in its allegations and specificity. (He names many Moody’s executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.)
Given this, we expected Moody’s might want to share its side of the story, denounce Harrington as a disgruntled ex-employee, or reaffirm its confidence in its ratings processes and integrity. Instead, Moody’s did not return multiple calls seeking comment.