For years, federal agencies and Congress have made attempts to reform the credit ratings business, which on its face is a bit absurd -- part accountancy, part cheerleader, part judge and jury of the financial system. As things stand, firms that want to borrow money from the bond market seek out a seal of approval from companies like S&P, Moody's and Fitch, and pay handsomely for it. The firms say they isolate fee collection from ratings judgment, but the business model is the very definition of a conflict of interest -- and the firms' actions during the height of the housing bubble call into question their ability to keep the ratings business free of profit-driven influence.

"It's like one of the parties in court paying the judge's salary," Levin said recently.

Levin's report includes testimony from an endless stream of former employees who say they felt pressure to grant top ratings to new bond issues, lest they lose deals to competitors. In fact, the housing bubble was very, very good for the ratings agencies -- Standard & Poor's fees from mortgage-related bond issues quadrupled from $64 million to $265 million between 2002 and 2006, the report found.

Internal e-mails from the various firms show that warning bells were repeatedly ignored. A 2006 email from an S&P employee cited in the report said the rating agencies "have all developed a kind of Stockholm syndrome," held captive by banks. Another e-mail cites an employee openly fretting about the agencies facing their "Nixon moment," when the housing bubble finally burst.

"The absence of timely downgrades in these cases was a product of an industry that was beset by conflicts of interest and a lack of competition. Ultimately, this compromised the integrity of the market and investors paid the price," a prominent U.S. senator stated nearly a last decade ago. That senator was prominent Republican Richard Shelby of Alabama, now one of the most skeptical voices in Congress about the current round of financial reform. Shelby uttered those words after ratings agencies were cited as one of the causes of the Enron debacle in 2001 -- and as Republican President George Bush signed into law the Credit Rating Agency Reform Act in 2006. It was designed to prevent another Enron -- or at least to prevent ratings agencies from causing one.

I might have missed it, but I haven't noticed anyone bringing up this aspect of the S&P downgrade and its relationship to the ongoing Congressional rebuke of the ratings agencies.

S&P was too kind. They should have rated US treasuries junk to put an end to this borrowing madness. Worse days are coming, much worse. Tony and his ilk represent everything that is wrong with this country.

smoking gun e-mails that suggested that the firms knew they were profiting from unethical behavior.
POSTED BY TONYROMA

If a bank wanted to issue a mortgage-backed security, it could shop it to various agencies and pick whichever firm offered the highest rating. The temptation for competitive forces to overwhelm good accounting was enormous.

When the day of reckoning came for the housing bubble, the ratings agencies pulled the Band-Aid off the wound with one quick, brutal yank. In July 2007, S&P downgraded 1,100 mortgage related securities, an unprecedented volume. The massive downgrades were immediately preceded by equally massive new issues, however. In the first week of the same month, S&P issued 1,500 new positive residential mortgage-backed securities ratings, and Moody's did much the same, raising the obvious possibility that the right hand didn't know what the left hand was doing -- or worse.

"(It) raises serious questions about whether S&P and Moody's quickly pushed these ratings through to avoid losing revenues before the mass downgrades began," the Levin report said.

"We regret that, like many others, we did not foresee the speed and extent of the housing downturn, which was the steepest decline since the Great Depression," spokeswoman Catherine Mathis told Bloomberg at the time.

It's impossible to ignore the rating agencies incestuous relationship with all aspects of the housing bubble and its subsequent collapse. It doesn't matter who you blame, the agencies were paid handsomely to rate the dreck that brought down the financial system and got caught red-handed playing both sides against the middle.

Power tends to corrupt. Absolute power corrupts absolutely.

Better late than never. And they're different departments that rate sovereign, vs municipal, vs corporate, vs mortgage-backed, vs asset-backed. The corporates know what they're doing; the muni people are okay. The MBS and ABS people are basically brain dead, and that was the focus of the Congressional report.

It's funny to watch the most spendthrift Congresses in world history rip into a ratings agency for telling us what we already know: we borrow way too much money, with no thought as to paying it back.

In April, Sen. Carl Levin, D-Mich., issued a scathing 650-page report contending that malfeasance at ratings bureaus like Standard & Poor's was as much to blame for the housing bubble as any bank,

Funny, I thought this was the fault of the Tea Party? Or, per Barney Frank, the fault of the defense department. Now, it's the fault of Standards & Poor's.

Seems to controlling political authority (i.e. the Democrats) can't get their story straight.

Carl Levin, D-Mich., issued a scathing 650-page report contending that malfeasance at ratings bureaus like Standard & Poor's was as much to blame.... - per the article

Of course....the blame game???

FYI....The American People are to the point where they want action not Obama and the rest of the Dems playing the blame game like a bunch of one trick ponies. This is a pathetic show of leadership by anyones standards.

Lucky for us The People realize this and President O'Blame-ah and the rest of his Marxist crew are on their way out.

Funny, I thought this was the fault of the Tea Party? Or, per Barney Frank, the fault of the defense department. Now, it's the fault of Standards & Poor's.

Seems to controlling political authority (i.e. the Democrats) can't get their story straight.

#7 | Posted by dr_dude2

The left in this country is the equivalent of the kid on the play ground that shit his pants and when asked by the teacher points to everyone else. He thinks he is fooling everyone however the stench is just too great for anyone to believe him.

loans that were made under the pressure of another federal law, the 1977 Community Reinvestment Act (CRA), to increase lending in low- and moderate-income communities.

What a crock of corporate apologist bullshit, Bok. 30 years later it suddenly hit? And you righties whine when we mention Bush's economic disasters? Yet 2008 was all carter's fault, somehow?

There is nothing in the CRA that allows NINJA loans, realtor/ appraiser/mortgage officer fraud and collusion (see Florida), multiple mortgages given to guys who couldn't afford one mortgage. AZ got hammered due to speculators, not Carter. And many of the communities hit would only be described as low or moderate income by the Koch brothers.
As soon as you righties stop tongue massaging CEOs prostates, you might be able to join in on saving America from those kleptocrats.

S&P downgrades American Treasury bonds and the stock market tanks, billions are moved into American Treasury bonds? And we aren't supposed to downgrade the value of S&P's ratings?
After they missed the worst economic crisis since the Great Depression does anyone seriously consider their opinion before they invest?
S&P even admitted that they made a 2 trillion dollar error on their calculations.
England is having huge riots yet they are still AAA, as is France, as is Isle of Man???
As recently as June of 2006 S&P was rating Iceland AA+, as recently as Sept. 2008 they were still A-, last week they held a second referendum which allowed the people to decide that Iceland would tell their creditors to go to hell. S&P ratings are worthless.
Come on, S&P is a joke and no one really cares what they say and will progressively care even less. They should have kept quiet and hoped that no one would notice how irrelevant they are.

S&P dared to mess with the messiah- mess with Obama and you will have your reputation ruined- let this be a lesson to anyone who dares go against the annointed one. Hope and Change suckers

As soon as you righties stop tongue massaging CEOs prostates, you might be able to join in on saving America from those kleptocrats.
Posted by northguy3 at 2011-08-10 03:03 PM |

Yeah, everyone can be as stupid as you and donnerboy. How is that market doing today moron? Maybe you would like to revise that post form yesterday which proves what a dumbass you are when it comes to anything financial. Much like your post about CRA's and NINJA's which are as foreign to you as speaking latin. You bring up a wet state like Florida as some lame example of collusion by those entities? Somehow you think you understand the mortgage process? Go do some ice fishing on a less than frozen lake. At least the fucking fish will get something out it, society certainly hasn't nor will.

It's impossible to ignore the rating agencies incestuous relationship with all aspects of the housing bubble and its subsequent collapse. It doesn't matter who you blame, the agencies were paid handsomely to rate the dreck that brought down the financial system and got caught red-handed playing both sides against the middle.

#4 | POSTED BY TONYROMA AT 2011-08-09 11:06 PM | REPLY | FLAG

Funny. See Franklin Raines, Jamie Gorelick, Rahm Emmanuel. All big time democrats who took millions of $ from taxpayers while "serving" the taxpayers at Freddie/Fannie.

Tony why don't you ask Dodd and Frank why Freddie and Fannie were not regulated as part of the financial reform bill of 2010.

Come on, S&P is a joke and no one really cares what they say and will progressively care even less. They should have kept quiet and hoped that no one would notice how irrelevant they are.
#11 | Posted by danni at 2011-08-10 03:07 PM

Is it any wonder why danni is my go to guy when it comes to the markets? How could I go wrong echoing those logical and thought out opinions?

"Tony why don't you ask Dodd and Frank why Freddie and Fannie were not regulated as part of the financial reform bill of 2010."

Better yet, ask him why the amateur in chief and the cronies he called his economic team listened to Moody's Zandi and Bernstein when it came to the stimulus. Not to mention his wet dream Pelosi claiming Zandi is the congressional dems leading expert.

"Is it any wonder why danni is my go to guy when it comes to the markets?"

If you had listened to me instead of S&P you would have seen the housing bubble popping before it did and before S&P did. Simple arithmetic would have helped them but apparently, considering their 2 trillion dollar error recently, they can't do simple arithmetic.

S&P downgrades American Treasury bonds and the stock market tanks

Well someone is listening to them...LOL

I thought it was Bush's fault.

Well someone is listening to them...LOL

#18 | Posted by moneywar at 2011-08-10 03:23 PM | Reply | Flag:

Why do you take a look and see where the money from equities is moving. Hint, its not into Euro's.

"Hint, its not into Euro's."

Yet some of the European Union nations are still AAA.
Does anyone honestly believe France is a better credit risk than the US?

Does anyone honestly believe France is a better credit risk than the US?

#21 | Posted by danni at 2011-08-10 03:43 PM | Reply | Flag:

No. Much of the turmoil in the markets is due to banking issues in Spain and France.

-Much of the turmoil in the markets is due to banking issues in Spain and France.

A main reason the euro banks have 'issues' is they bought a shitload of toxic AAA rated loans from the US.
Maybe S&P think they owe the French etc, for not looking too hard behind the AAA rating for junk bonds.
This was really an economic war in which the US capitalists, with help from their euro counterparts, screwed the (working class) europeans out of trillions.
We will get our revenge.

"We will get our revenge."

Hope you do but I hope you realize too that Americans are not the same thing as the US capitalists you mention, we got screwed too.

its bush's fault
tea party
heartless gop
left handed squash players
redneck trailor park people.
standard and poors.

EVERYBODY's to blame but the dems and barry

typical liberal bullsshit

temptation for competitive forces to overwhelm good accounting

capitalism won that round. now kill it.

Behavior created by Congress. online.wsj.com

#3 | Posted by BokChoy at 2011-08-09 10:45 PM

If you had listened to me instead of S&P you would have seen the housing bubble popping before it did and before S&P did. Simple arithmetic would have helped them but apparently, considering their 2 trillion dollar error recently, they can't do simple arithmetic-- Danni

Wow Danni we had no idea you had predicted the housing boom and bust- did you also see the .com bubble before it happened. what will happen next week/month/year ole prognosticator of global financial markets.

problem is we elected a guy with no experience who then appointed his friends who also have no experience and this is what we are left with; a crumbling economy, downgraded rating, endless deficits, and a 3rd war. hope and change bitches

There is a book called "the big short" that discusses this problem. Nothing in the news about the rating agency's failure here

How is it that S&P is permitted to exist after their AAA rating scam on the public with the Wall Street collateralized mortgage obligations? They should have been forced into liquidation and every ratings agency forced to go to a new business model that required objective ratings and not conflicts of interest on ratings.

"Wow Danni we had no idea you had predicted the housing boom and bust-"

You weren't here then. The Housing bubble WAS the Bush economy, when it busted so did his economy. BAck before the bust though we read all the time about "that great Bush economy." Some of us figured out that it was just the result of too much lending at too low interest and that when interest rates rose the economy would collapse which it did.
It was pretty easy to figure out, if someone was making their $1500 mortgage payments with interst rate of 1 or 2% then it was pretty easy to figure out that when rates went up to 4 or 5% they wouldn't be able to make the payments.

"It was pretty easy to figure out, if someone was making their $1500 mortgage payments with interst rate of 1 or 2% then it was pretty easy to figure out that when rates went up to 4 or 5% they wouldn't be able to make the payments."

Do hou have the first clue what the qualifying rate and payment was used to approve the loan? Now if that payment was $1500 for the 1-2% rate, how much was the original loan amount and how were the payments determined? Were they one month arms? Interest only? 5,7,10 year programs? You think by simply throwing some number out there means you know WTF you are talking about?

"problem is we elected a guy with no experience who then appointed his friends who also have no experience and this is what we are left with; a crumbling economy, downgraded rating, endless deficits, and a 3rd war. hope and change bitches"

Remember John McCain...."the fundamentals of our economy are strong."

Obama inherited the worst mess since the Great Depression, got the stock market back up, GDP growing, unemployment falling all without the help of the Republicans who only wanted him to fail. Without the help??? That's an understatement, more like against everything the GOP could do to prevent a recovery. We just witnessed their latest attempt to kill the economy....and McConnell said they will do it again and again. Your rant Kersh sounds foolish in light of all of that. Just tired old talking points strung together that no one believes any more.

"WTF you are talking about?"

I'm talking about friends of mine who bought houses I knew they could not afford, oh they knew everything back then. They got equity loans, bought big TVs, pools, remodelled, etc. all looking down their noses at me who lived in a rental back then. Now I own my condo and they rent. When the bubble burst their values dropped, their interest rates rose and they couldn't get refinanced. They couldn't make the higher payments. They all thought I was stupid when I bought my condo with a 30 year fixed rate mortgage.

Actually with the falling home values my taxes have dropped so much that my house payment (which includes my taxes) is nearing 50% of what I paid when I first bought the place. WAy less than what I used to rent for and the condo is much nicer than my rented places.

Your rant Kersh sounds foolish in light of all of that. Just tired old talking points strung together that no one believes any more.

#33 | Posted by danni at 2011-08-10 05:50 PM |

More of that logic you thought through danni? Just curious if these just may be considered talking points?

"Obama inherited the worst mess since the Great Depression, got the stock market back up, GDP growing, unemployment falling all without the help of the Republicans who only wanted him to fail."

We just witnessed their latest attempt to kill the economy....and McConnell said they will do it again and again. Your rant Kersh sounds foolish in light of all of that. Just tired old talking points strung together that no one believes any more.

#33 | Posted by danni at 2011-08-10 05:50 PM | Reply | Flag:

Only a hippie would conclude that lowering cost is equal to "killing the economy".

"I'm talking about friends of mine who bought houses I knew they could not afford, oh they knew everything back then."

So the crap about the examples you used when you were praising yourself for predicting the Housing bubble came out of your ass? That makes the most sense to me....

We just witnessed their latest attempt to kill the economy....and McConnell said they will do it again and again.

#33 | Posted by danni at 2011-08-10 05:50 PM | Reply | Flag:

I forgot to call you a bald faced liar. My apologies.

"So the crap about the examples you used when you were praising yourself for predicting the Housing bubble came out of your ass?"

Anyone who thought about it back then could see that the housing bubble was unsustainable, interest rates wouldn't stay at 0 or 1% forever. Whenever they went up millions of homes were going into foreclosure and that is exactly what happened. I will admit though that the main reason I gave it thought was because the housing market ws the Bush economy and all the Bushies were bragging about how great it was at the time thus I had good reason to try and figure out where the weak point was. It wasn't hard.

"I forgot to call you a bald faced liar. My apologies."

McConnell didn't say they'll do it again?
You're sort of pathetic.

McConnell didn't say they'll do it again?
You're sort of pathetic.

#41 | Posted by danni at 2011-08-10 06:08 PM | Reply | Flag:

You are claiming McConnell said he would hold the economy hostage and kill it rather than negotiate.

That is what you claimed and you know as well as anyone that can read, he did not say that or imply that.

Hence you are a bald faced liar for claiming he said it.

"Anyone who thought about it back then could see that the housing bubble was unsustainable, interest rates wouldn't stay at 0 or 1% forever."

Sooo now it was the 0% interest rate loans... Sure would love to see any lender loan money and get nothing back but the principle and last more than five minutes. Maybe you should simply stick to the Bush bad, blame Bush and stay the fuck away from anything Housing related.

"Sooo now it was the 0% interest rate loans..."

I'm not going to get into one of your idiotic arguments where you pick little details of arguments and pick pick pick but I will say that the 0 and 1% interest rates were from the Fed to the banks. Finally Greenspan raised the rates and killed the bubble.

"He insists there's nothing he could've done to prevent today's plummeting home prices and the fact that a million families have lost their homes, and many more could. But some economists now say Greenspan actually created the housing bubble and the credit crunch by keeping interest rates too low for too long.

"Just remember we raised interest rates at every meeting from June of 2004 till I got out of office," he says.

"You raised rates in 2004. But only after you held interest rates at historically low level for three years, while the bubble, the housing bubble was forming," Stahl points out. "And that you had 13 rate cuts in that period of time."

"It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," Greenspan explains.

But some of the Fed governors who worked with Greenspan at the time are now saying that they think interest rates were too low for too long."

#10 | POSTED BY NORTHGUY3
Never said it was a DEM thing; said it was a Congress thing.

#27 | POSTED BY WHATSRIGHT

More than 1 opinion I think.

#40 | Posted by danni

Danni--you really are too much at times...

Clinton started the 'all Americans should own a home' campaign. He signed the Glass Steigel Act.

Bush continued it--what a great goal for every American to own a home.

Problem was they didn't finish the damn sentence...

Every American should own a home THAT CAN AFFORD IT!!!!!

And the reason for all the foreclosures is because 2 million people have lost their jobs.

And how the heck do you explain Bernake with his LOW interest rates--going over two years now??

And Bernake said he would keep the interest rates low until 2013!!

Where is your outrage??

#30 | Posted by Robson

You forgot Enron and Worldcom and Tyco...

As for the derivatives they passed the buck because AIG was saying it was an insurance/reinsurance activity and S&P and Moody's and the rest don't do insurance.

And the insurance agencies never looked at the derivatives because it was AIG and AIG was the biggest tuna and beyond reproach.

Also because they were not doing the derivatives state to state--so the DOI of any state would have an interest in looking at derivatives.

They were doing the derivatives country to country or bank to bank--and that is beyond the authority of any state Department of Insurance.

""S&P even admitted that they made a 2 trillion dollar error on their calculations."" Danni

Not sure there is a big difference between 24 Trillion and 22 Trillion on the deficit.

We don't have the money--even if we taxed the millionaires and billionairs we would only get 249 billion at 100%.

Drop in the proverbial bucket.

Does anyone honestly believe France is a better credit risk than the US?

#21 | Posted by danni

The pain of the world comes right back to American pain.

France may get downgraded--everyone wants a bailout--they should be downgraded if they can't put their fiscal house in order.

Just like the US--we can't borrow any more money--we are tapped out, the credit card limit has been maxed out--we are cut off.

Hence the Obamageddon downgrade--the AA+ President.

And no faith in the super committee. You have Herman Munster and Patty Murray who believes Osama bin Laden builds roads and schools and daycare centers in Afghanistan (pfft --freakin idiot) and Baucus who will find some way to muck it up.

Wait until we see who McConnell picks--more muckers...

"I'm not going to get into one of your idiotic arguments where you pick little details of arguments and pick pick pick but I will say that the 0 and 1% interest rates were from the Fed to the banks. Finally Greenspan raised the rates and killed the bubble.":

A little late for that danni. You prove everyday you have no fucking clue. Now what would possibly be the reason for the feds to keep rates low danni? Gee I don't know Wally, maybe to kick start the economy? Afterall those rates apply to more than mortgages Beav...

You weren't here then. The Housing bubble WAS the Bush economy, when it busted so did his economy. BAck before the bust though we read all the time about "that great Bush economy." Some of us figured out that it was just the result of too much lending at too low interest and that when interest rates rose the economy would collapse which it did.
It was pretty easy to figure out, if someone was making their $1500 mortgage payments with interst rate of 1 or 2% then it was pretty easy to figure out that when rates went up to 4 or 5% they wouldn't be able to make the payments.

So Dummi when exactly did the housing bubble start, under Bush or Clinton. Interest rates being to low? when they rose economy would crumble? WTF does that mean- non sense- try to actually understand finance and the markets before weighing in. 1st no one got 1-2%, what did happen Dummi are either buydown loans or ARMS. buydown is interest is 6% but you only pay 4% 1st yr, 5% 2nd year and finally the full interest rate in the third year and so on-. ARMs have a set rate in the beginning and then start to adjust every 12 months, typically based off the US treasury index 45 days prior to your anniversary date. ARMs were fine loans for some people who understand real estate and finance, obviously not your ilk. problem is you lemmings opened the paper or turned on late night infomercials with some clown telling you how to flip property without really grasping what you were getting into- kinda like the president which is why you feel so connected- neither of you have a clue and that is comforting for you. I should really thank you and your incredibly stupid friends, I've made a ton of money from you dolts.

"I should really thank you and your incredibly stupid friends, I've made a ton of money from you dolts."

Not that I ever got personal enough to ask political affiliation, but I can almost guarantee I made at least one extra point on stupid libs like danni.

All one has to do is simply go to Jan 2007 and notice the Housing and economy beginning to melt. Then of course look and see who wrote and passed the bank bailouts and stimulus to understand why the recovery has gone nowhere.

Not that I ever got personal enough to ask political affiliation, but I can almost guarantee I made at least one extra point on stupid libs like danni.
Yeah Crispee, I never have to ask political affiliation-- once they open their mouths its obvious.

Obama inherited the worst mess since the Great Depression, got the stock market back up, GDP growing, unemployment falling all without the help of the Republicans who only wanted him to fail. Without the help??? delisional at best Danni. Markets tanking, GDP down, deficit up, unemployment up ( remember Dummi Stimulus was to keep it below 8, we're over 9%) yes the Messiah was able to accomplish the reinstatement of the misery index and a generation who feels for the firat time, their lives wont be as good as their parents--- quite the legacy dummi, cant wait for him to run on his record.