Mortgage Bond Ratings Change: “Too little, too late.”

Glad to see someone else is paying attention: New York State Attorney General Andrew Cuomo’s office has issued subpoenas to S&P,
Moody’s and Fitch — specifically asking "how much each knew about flaws in the
mortgage products that they rated triple-A."

"Andrew Cuomo, New York state’s attorney general, wants
credit-ratings firms to go further in their efforts to overhaul how
they rate mortgage-related bonds, criticizing voluntary changes under
way at the firms as "too little, too late."

Moody’s Corp.’s Moody’s Investors Service, the Standard & Poor’s Ratings Services unit of McGraw-Hill Cos. and Fimalac
SA’s Fitch Ratings announced this week separate plans to improve
analysis of mortgage-related bonds and other structured-finance
vehicles.

Mr. Cuomo called the moves "window dressing" that fall
short of the systemic change needed to restore investor confidence.
S&P and Moody’s "are attempting to make piece-meal change that seem
more like public relations window dressing than systemic reform," he
said in a statement.

Mr. Cuomo is investigating rating firms to ascertain
how culpable they are for assigning ratings that were too high for
various bonds backed by subprime mortgages. Collateralized debt
obligations that heavily invested in mortgage instruments also were
highly rated. Many have since been downgraded, causing billions of
dollars in write-offs at financial firms."

In his statement, Mr. Cuomo said his office "will
continue its active investigation of the mortgage industry and the role
played by the ratings agencies in the mortgage meltdown."

In other words, the NYSAG wants someone to either go to jail, or write a big check. >

>




Source:
Rating the Rating Overhaul
New York State Official Calls Voluntary Moves ‘Window Dressing’
AARON LUCCHETTI
WSJ, February 8, 2008
http://online.wsj.com/article/SB120240353266351113.html

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What's been said:

Discussions found on the web:
  1. Justin commented on Feb 8

    It will more than likely be “writing a check,” which is just another form of bribery. Is there any true blue virtue anywhere?

  2. Justin commented on Feb 8

    Sorry, my last CNBC rant:

    Becky Quick et al…the way in which they ask(lead) their questions are so baiased toward the bull/long segment of the investing community. Is that fair and more importantly does it make for a efficently equilibrum seeking market?

  3. bonghiteric commented on Feb 8

    Buffett’s ownership of Moody’s is interesting. He is renowned for knowing a business thoroughly before investing. He knew it was a cash cow back in 2005-2006 but did he know it well enough to see what type of securities the company was rating? I don’t know, I doubt it. Could this investment have provided him enough insight into the business to plant the seeds for his entrance into the bond insurance sector…?

    Anyway good for Cuomo for shining some light on this broken business model.

  4. Justin commented on Feb 8

    bonghiteric, Warren seems to be a sweet guy, but isn’t it time that some of his holdings should be looked at from the “fairness” side of the ledger? When you think about it these guys (Ichan, Buffet et. al. have about the same reach as the Robber Barrons did back in the late 19th century.

    I know free-marketers too much regulation is a bad thing, but so is having prior knowledge/special knowledge before everyone else. We will never do away with asymetrical advantage, but we can at least try to keep it at bay.

  5. Justin commented on Feb 8

    Hey everybody we are going to have the shortest and least severe recession in the post world war II era. LOL!

    “Moody’s Economy.com estimates that the combination of the fiscal stimulus package and Federal Reserve monetary easing will increase real annualized GDP growth in the second half of 2008 by about 2 percentage points. This should help make the current recession the shortest and least severe in the post-World War II era.”

  6. Rahul commented on Feb 8

    The regulator always wakes after the fire has burned the house. With the Tsunami of the monoline bond insurers well on the way, to wake up those who managed to sleep through the sub-prime hurricane, we will know soon who else has been swimming naked all these days.

  7. dr paul commented on Feb 8

    It’ snot just about the fines and/or jail – Cuomo is helping provide much needed transparency to the process. How much did the rating agencies know – that’s the million (maybe billion) dollar question. As with the earlier wave of corporate frauds, the federal govt provides zero leadership.

    Maybe having all this information exposed will force some actual reforms. I’m not overly optimistic about reform, but you can’t even make an intelligent start without understanding if they knew the risks and maintained AAA or were oblivious to the risks.

  8. bluestatedon commented on Feb 8

    “This should help make the current recession the shortest and least severe in the post-World War II era.”

    Cool!! Now pass me the bong…

  9. bluestatedon commented on Feb 8

    Considering the arcane complexity of the exotic financial inventions that are the source of all this crap, it’d be interesting to find out if the ratings firms really truly understood what they were rating.

  10. wunsacon commented on Feb 8

    I’m writing a bill which I’ll call “The Attorney General & Prison Builders Full Employment Act of 2008-2009”.

    For financial fraud on the level we’ve seen the past few years, I would like to see prison terms and, for the worst offenders, executions. And fraudsters’ estates don’t get to keep the ill-gotten bonuses.

    Who among you wants to co-sponsor this bill? Let’s beat the recession by frying the bastards who caused it!

    ;-)

  11. Al Czervik commented on Feb 8

    “In other words, the NYSAG wants someone to either go to jail, or write a big check.”

    Me too. I prefer jail.

  12. NeilC commented on Feb 8

    Cuomo should be attacking the AICPA, rather than the rating agencies, which rely on substantially on approved financial statements.

    As recently as the last quarter of the past century, banks had an item called ‘Other Assets’, which later became ‘Other R/E’ which is really meant to be ‘Foreclosed R/E’. This example might serve as an indicator of the AICPA’s integrity.

  13. Pat G. commented on Feb 8

    CUOMO for President!!

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