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May. 13 2010 - 4:36 am | 117 views | 1 recommendation | 3 comments

Meme alert: Ratings agencies as victims

NEW YORK - MAY 5: New York State Attorney Gene...

Image by Getty Images via Daylife

It must be an election year. Andrew Cuomo is working overtime, expanding his probe of financial hanky-panky on Wall Street, apparently to come to the rescue of its co-conspirators victims:

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.

via Cuomo Is Said to Question Banks’ Influence on Ratings – NYTimes.com.

The rating agencies served as the handmaidens to Wall Street firms slapping triple-A ratings on mortgage-based derivative deals faster than you can shout, “Next!” Imprimaturs from Standard & Poor’s and Moody’s (major stakeholder: Warren Buffett) enabled many municipalities and pensions seeking top-rated  investments to buy collateralized debt obligations (CDOs) that later turned out to be drek.

Apparently the rating agencies were so busy taking fees from Wall Street that they didn’t have time to check for duping, duplicity, or just plain daffiness. Last month, an anonymous source explained to the Times:

“If you dug into it, if you had the time, you would see errors that magically favored the banker,” said one former ratings executive, who like other former employees, asked not to be identified, given the controversy surrounding the industry. “If they had the time, they would fix it, but we were so overwhelmed.”

And here’s further evidence of victimhood: Turncoats who presumably distracted former colleagues from The Truth. Goldman Sachs (the firm America loves to hate the most) wooed and won Shin Yukawa, a former Fitch Ratings employee, by offering a million dollar package, the Times explains. Three others bolted to sell-side firms. And if that weren’t proof enough, Yukawa worked on the Abacus 2007-AC1 deal at the heart of the SEC and criminal probes into Goldman. And we thought the “fab Fabrice” was behind that deal. Apparently he had help.

I would like to know from you, dear readers, what you think our friend Andrew Cuomo is up to. What benefit is there to the presumptive Democratic candidate for NY State governor in re-casting the ratings agencies as victims in the CDO blow-ups? Is it because the rating agencies were exempt from liability for wrong-headed ratings decisions? Is it because he knows, as former head of the Housing and Urban Department, that it’s all too possible to make bad credit decisions? Memory refresher: Back in the late 1990s early aughts, Cuomo championed extending FHA-backed loans to people who couldn’t really afford to buy homes. Was he duped back then as well?


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  1. collapse expand

    I think that the ratings companies do deserve some of the blame, although that doesn’t mean that the financial institutions are any LESS guilty of hanky-panky.

    I have a policy with Shenandoah Life which I was planning on cashing out soon. Shenandoah Life had been in business for over 100 years and had a solid reputation.

    I suppose I should’ve been concerned when their rating was downgraded from A- to B+++ in Sept. 2008 by A.M. Best Co. B+++ was still a high rating though, and didn’t seem to warrant much concern.

    An article about the rating change at the time even said that Shenandoah continued to be “strong financially” and “secure”.

    Just a 4 and 1/2 months later though the company was in such financial trouble that it went into receivership, and would no longer cash out policies. So I’m out almost $20K, and I think that the ratings company A.M. Best Co. does deserve some of the blame for not being more forthright about the true condition of Shenandoah Life’s finances.

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    I am a financial writer and have worked for or contributed to a number of news publishers. As the song goes, "some are dead and some are living, but in my life, I have loved them all" -- Knight-Ridder Financial, USA Today, Quick Nikkei News, and Barron's -- to name a few. I am grateful to Wall Street for creating a spectacular market smash-up based on the mortgage securities market, my first beat. I'm ever so much more popular at dinner parties these days. I hope you enjoy my blog, it marks my return from the mommy track. There's no tantrum I can't handle.

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