Quis custodiet ipsos custodes?
(Note how I am cleverly getting you to read a financial article by making you think it's about the upcoming Watchmen film.)
A few weeks ago I recommended an article by Michael Lewis about the meltdown, and who knew it was coming, and who profited by knowing.
One of the heroes of that article was an investor named Eisman, "who couldn’t figure out exactly how the rating agencies justified turning BBB loans into AAA-rated bonds."
Today's New York Times has an article on exactly that topic.
"Moody’s, which judges the quality of debt that corporations and banks issue to raise money, had just graded a pool of securities underwritten by Countrywide Financial, the nation’s largest mortgage lender. But Countrywide complained that the assessment was too tough.
"The next day, Moody’s changed its rating, even though no new and significant information had come to light . . .
"That the credit-rating agencies missed immense problems in the mortgage-related securities they blessed is undeniable. Moody’s declined to say how many classes of the securities it has downgraded. But the number is in the thousands and the original value in the hundreds of billions of dollars.
"When Moody’s began lowering the ratings of a wave of debt in July 2007, many investors were incredulous.
“If you can’t figure out the loss ahead of the fact, what’s the use of using your ratings?” asked an executive with Fortis Investments, a money management firm, in a July 2007 e-mail message to Moody’s. “You have legitimized these things, leading people into dangerous risk . . .
"Moody’s current woes, former executives say, were set in motion a decade or so ago when top management started pushing the company to be more profit-oriented and friendly to issuers of debt. Along the way, the firm, whose objectivity once derived from the fact that its revenue came from investors who bought Moody’s research and analysis, ended up working closely with the companies it rated, and being paid by them."
They were being paid by the same people they were expected to rate. Why should we be surprised that they tried to make them happy?
Revolution by guillotine doesn't seem so bad now, does it?