Sweetheart Deal for Rating Firms

Too little, way too late:

"Under fire for the high ratings they awarded to subprime mortgage securities, three large credit rating firms are close to announcing a broad deal with the New York attorney general to reform some of their core business practices, according to people briefed on the investigation.

Most significantly, the rating firms are considering changing how they charge fees for ratings to make it harder for investment banks to play the firms against one another to obtain a better rating, these people say, adding that negotiations are ongoing and the deal could still fall apart.

As part of the deal being discussed, the firms — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — would also aid Attorney General Andrew M. Cuomo’s broader investigation into how Wall Street packaged mortgages into securities, in exchange for immunity from prosecution. And the rating agencies will establish new standards for how investment banks review mortgage loans . . .

Under the proposed deal with Mr. Cuomo, a rating agency would charge fees in stages for various analytical tasks — not just the rating, which acts as a sort of grade for investors. They will also disclose every three months all deals that they were asked to rate and all the deals they end up rating, providing investors more information than is now available."

What a limp, pathetic deal. It almost makes you miss former Attorney General Eliot Spitzer . . .

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Source:
Rating Firms Seem Near Legal Deal on Reforms
JENNY ANDERSON and VIKAS BAJAJ
NYT, June 4, 2008
http://www.nytimes.com/2008/06/04/business/04cuomo.html

Related:
S&P Slashes Ratings of Big Banks 
http://online.wsj.com/article/SB121242587817338343.html

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What's been said:

Discussions found on the web:
  1. Steve Barry commented on Jun 4

    Sounds good…no prosecutions and we’ll all have a laugh about this little mess someday.

  2. stuart commented on Jun 4

    The ole boys club is very much alive and well.

  3. Marcus Aurelius commented on Jun 4

    The New York attorney general’s office should limit itself to prosecution of crimes.

    As for Spitzer, ’twas the hypocrisy what undid him – not the nookie.

  4. s0mebody commented on Jun 4

    Why should they get immunity from prosecution?

  5. tom a taxpayer commented on Jun 4

    Outrageous dereliction of duty by the AG! “Reform” my foot. 10 to 30 years of jail time would more like appropriate.

    Yes, as part of furthering the broader the investigations, the AG can offer some deal, but the deal should be a reduction in jail time…not letting these slime balls go free.

    Does the AG not realize he is investigating the greatest financial crimes in U.S. history? These slime balls at the rating agency are a key part of the criminal enterprise that included Wall Street investment banks and brokerages, commercial banks, mortgage originators, appraisers, etc.

    What is needed is a Mafia-style RICO prosecution of the entire gang for committing the greatest financial crimes in U.S. history… the entire gang that raped and pillaged the mortgage industry, ruined the housing market, destroyed the credit system, endangered municipal financing, pension funds, and the banking system, sent the economy into a downward spiral, and endangered the world financial system. The top criminals blackmailed the Fed, the British government, the German government, and the world to pay them billions in ransom or face the destruction of the world financial system and economy.

    It’s time for federal and state prosecutors take off the kid gloves, and put on the iron mail of justice.

  6. daveNYC commented on Jun 5

    Sure it’d be nice to at least fine them, but it’s not like they’d be able to pay. Heck, they probably settled quickly because they were running out of cash for the lawyers.

  7. tranchefoot commented on Jun 5

    No, it does make me miss Spitzer.

  8. Space Cowboy commented on Jun 5

    Showtime for the Sheeple w/the timeless script:

    Search for the Guilty,
    Punishment for the Innocent,
    Promotion for the Well Connected.

    OR…as the (late) Bo Diddley would say: “a dude with a pencil is worse than a cat with a machine gun”

    Speaking of Senor Spitzer….though his taste (and protocols) were questionable, his heart & soul were OK in my book

    Hence why he had to be outed…way too much risk for the powers that be to leave him in place.

    As always, your mileage may vary….

  9. hal commented on Jun 5

    the consequences of this type of behavior is obviously not all that great as a deterrant. It does not even cause embarrassment by the perps-no outcasts–its kind of like a badge of courage.

    These perps have to be made to suffer–take away the assets of the perps and the families of the perps. Stick them in prison for several years-make the downside rather unattractive.

    Perhaps its time to allow those harmed to have access to the assets (almost like Enron)

    eh, what’s the use–it’s part of our society–only nerds follow rules.

  10. rexl commented on Jun 5

    if the top ten executives, arbitrary cut-off, were grabbed out of their offices, dragged out to the street and beat down, really beat, jaw smashed, leg broke, arm, so that they never talked or walked the same. then there might be some change, especially if the vicious beating was on television.
    now that would be just punishment for stealing the amounts of money they do, stealing, get it?

  11. blin commented on Jun 5

    tom the taxpayer summed it ALL up.

    Hopefully US citizens will become angry enough during the current administration’s tenure to expose the criminals so that the next administration can begin prosecution proceedures.

  12. Jim Haygood commented on Jun 5

    As Bloomberg reports that MBIA and Ambac may “give up” trying to keep their triple-A ratings, I’m becoming interested in what happens now.

    We know that a lot of “silk purse from sow’s ear” CDOs were misrated in the first place, using faulty assumptions and (in the case of Moody’s in London) a defective model. Now more junky debt which was triple-A rated only by virtue of an Ambac or MBIA guarantee may also revert to junk as the guarantees become worthless.

    How much will that add to the total stock of impaired debt? Who’s holding it? Does it get marked to market, and if so, when?

    Isn’t there leverage piled upon leverage here? The insurers handed out AAA guarantees on debt whose value far exceeded their own capital. Some of that debt, in turn, is being counted as core capital by other leveraged entities (investment banks, commercial banks, insurers, and the like). Then, there are leveraged hedge funds which sold protection on debt, via CDS, which may now ripen into a claim for payoff at par.

    Is there enough capital in the whole universe to keep this triple-layer, leveraged house of cards from falling in upon itself?

    I don’t know the answer, and probably the estimable Barry R. doesn’t either. But we’d better keep an eye on it here, before something dreadful goes bang in the night.

  13. Francois commented on Jun 5

    Why do we have to choose between deal and prosecution in such a case?

    I’d rather prefer this:

    “a determined regulator can, if nothing else, harass a company into submission (the Japanese are masters of this technique) and they have more powerful tools at their disposal. But that presupposes the will to intervene, which despite the crisis, still appears to be sorely lacking.”

    http://www.nakedcapitalism.com/2008/05/how-to-leash-and-collar-financiers.html

    The rest of the article is worth a look IMO.

  14. Risk Averse Alert commented on Jun 5

    I agree with “Tom, a taxpayer.” I wonder, though, why are these things being handled by the NY AG and not some relevant federal agency?

    I also had the some wonders as Jim Haygood.

    I think the problem has moved well beyond the need for greater regulatory oversight. Rather it requires a massive bankruptcy reorganization and a global rework of the international financial system.

    The problem is resistance one might expect from the City of London and its children on Wall Street. Thus, the greatest need of all is political leadership willing to wage all-out war for the sake of the very survival of our nation.

    All the way up over the past decade or more, far-sighted observers saw how problems were being addressed only by postponing permanent resolution, thus creating an even bigger problem in the end. So, this is what we have come to: war. The only question remaining is, on whose terms?

  15. tom a taxpayer commented on Jun 6

    Wall Street Journal online:
    “The Securities and Exchange Commission is investigating whether insurer American International Group Inc. overstated the value of contracts linked to subprime mortgages, according to people familiar with the matter.
    Criminal prosecutors from the Justice Department in Washington and the department’s U.S. attorney’s office in Brooklyn, New York, have told the SEC they want information the agency is gathering in its AIG investigation, these people said.”

    http://online.wsj.com/article/SB121271786552550939.html

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