from SLATE: > Head of Ratings Agency Tells Investors Not To Rely on Ratings
> Testifying before the U.S. Financial Crisis Inquiry Commission today, the CEO > of Moody's credit rating agency announced that he was "certainly not > satisfied with the performance" of highly rated subprime mortgage loans (you > know, the ones linked to the financial crisis) and that the company was > working to fix the rating process. Moody's, along with Fitch and Standard and > Poor's, has been accused of giving artificially high ratings to risky loans, > and later downgrading the ratings after homeowners were unable to pay them > back. Chairman Phil Angelides opened today's panel by criticizing Moody's > role in the crisis. "Moody's did very well. The investors who relied on > Moody's ratings did not do so well," Angelides said. Reading from a prepared > statement, Moody's CEO Raymond McDaniel remarked that credit ratings are "not > a buy, sell or hold recommendation," and that clients should do their own > homework before making investment decisions. > McDaniel's comments were followed up by a former Moody's official—and current > whistle-blower—who testified that it was "very clear" that his professional > future was tied to how much market share he brought the company. When the > panel chair asked Eric Kolchinsky "whether pressure to keep up with large > volumes of business was like the scene from the I Love Lucy television show, > where Lucy Ricardo struggles to package chocolates speeding down a conveyor > belt, he answered, 'Oh yes, all the time.' " > Lawmakers are also investigating the revolving door between ratings agencies > and Wall Street. According to an April New York Times article, one of the > reasons why shoddy mortgage investments were so highly rated was because > "Wall Street was given access to the formulas behind those magic ratings—and > hired away some of the very people who had devised them." Testifying this > afternoon, Warren Buffett, the largest shareholder of Moody's and the > chairman of Berkshire Hathaway, said that reforms were needed but stopped > short of calling for drastic measures. "In this particular case, they made a > mistake that virtually everybody in the country made," Buffett said. "It was > the granddaddy of all bubbles."< Read original story in BusinessWeek [http://www.businessweek.com/news/2010-06-02/moody-s-chief-says-cdo-ratings-deeply-disappointing-update2-.html ] | Wednesday, June 2, 2010 -- Jim Devine "Those who take the most from the table Teach contentment. Those for whom the taxes are destined Demand sacrifice. Those who eat their fill speak to the hungry of wonderful times to come. Those who lead the country into the abyss Call too ruling difficult For ordinary folk." – Bertolt Brecht. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
