Debt Watchdogs: Tamed or Caught Napping?

[RedEarth]

The housing mania was in full swing in 2005 when analysts at Moody’s Investors Service, the nation’s oldest and most prestigious credit-rating agency, were pressured to go back to the drawing board.

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, according to two people briefed on the change who requested anonymity to preserve their professional relationships.

Moody’s had assigned high grades to many securities containing Countrywide mortgages. Those securities and mortgages, issued during the lending spree of recent years, later soured — leaving investors with large losses and homeowners and communities struggling with foreclosures.

That was not the only time Moody’s softened its stance on Countrywide securities. It elevated ratings several times after Countrywide complained, the people briefed on the matter say.

Since the subprime mortgage troubles exploded into a full-blown financial crisis last year, the three top credit-rating agencies — Moody’s, Standard & Poor’s and Fitch Ratings — have faced a firestorm of criticism about whether their rosy ratings of mortgage securities generated billions of dollars in losses to investors who relied on them.

The agencies are supposed to help investors evaluate the risk of what they are buying. But some former employees and many investors say the agencies, which were paid far more to rate complicated mortgage-related securities than to assess more traditional debt, either underestimated the risk of mortgage debt or simply overlooked its danger so they could rake in large profits during the housing boom.

http://www.nytimes.com/2008/12/07/business/07rating.html?hp

[Idealism]

1. People don't blame the credit rating agencies enough

There sole job is to rate paper to protect people who want to buy high quality investments. By rating something as AAA when it will most likely default gave thousands of companies the false sense of security needed to look the other way when the market started blowing up. Moodys, S&P, and Fitch all should be liquidated for their role in this crisis.

[Seldona]

2. Without these crooks the scandle would have been impossible.

Talk about the Fox in charge of the chicken coop! Where are the perp walks?

[bemildred]

3. Gee, it's almost like they prostituted themselves for money.

Any good scam needs testimonials from "disinterested bystanders".

[Tutonic]

4. Failed again. B of A is full of debt and laying off massive numbers

in February, March, April. However, of all of the big banking/mortgage firms they need to fail.