Ratings agencies - Lies and puffery

[basilio]

Interesting story emerging from a former senior president at Moody's ratings agency that confirms the lack of independence the ratings assessors have in the agency.

Just a fundamental conflict of interest to have ratings agencies also paid by the institutions they are "rating "

Ratings agencies suffer 'conflict of interest', says former Moody's boss

William Harrington attacks agencies for being paid by banks and companies they are supposed to rate objectively

A former credit-ratings agency executive has launched a stinging attack on the powerful organisations that can damage countries' economies and wreak havoc in the markets with the stroke of a pen.

William Harrington, a former senior president at Moody's, claims the organisation's senior management interfere with analysts' independent assessments.

Ratings agencies have attracted international opprobrium after Standard & Poor's, another of the three big agencies alongside Moody's and Fitch, stripped the United States of its gold-standard AAA rating.

Harrington, who worked at Moody's for 11 years until he resigned last year, said ratings agencies suffer from a conflict of interest because they are paid by the banks and companies they are supposed to rate objectively.

"This salient conflict of interest permeates all levels of employment, from entry-level analyst to the chairman and chief executive officer of Moody's corporation," Harrington said in a filing to the US financial regulator the securities and exchange commission (SEC), which is considering new rules to reform the agencies.

Harrington claims that Moody's uses a long-standing culture of "intimidation and harassment" to persuade its analysts to ensure ratings match those wanted by the company's clients. He says Moody's compliance department "actively harasses analysts viewed as 'troublesome' " and said management "rewarded lenient voting".

"The goal of management is to mould analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximising earnings of the largely captive franchise," he said in the 78-page filing submitted earlier this month.

http://www.guardian.co.uk/business/2011/aug/22/ratings-agencies-conflict-of-interest

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Another link to the story with more details of Harringtons accusations as well as Harringtons testimony to the SEC.
The second URL is a MUST READ. Goes to the heart of the GFC and the role of the ratings agency in directly causing this crash.


http://www.businessinsider.com/moodys-analyst-conflicts-corruption-and-greed-2011-8

http://www.businessinsider.com/mood...ost-recently-he-was-a-senior-vice-president-1

 

[robz7777]

Just watched Inside Job last night about the Investment Bank failures in 2008.

When the management of S&P and Moodys were asked about their AAA and AA ratings of Lehman, Freddie Mac etc (sometimes only a few days before they failed) they said that their ratings were only 'their opinion.'

Yet three years later everyone panics when S&P downgrades US debt? Strange times..

 

[basilio]

Saw an interesting comment on The Guardian with regard to the Harrignton story. Adds another dimension to the behaviour of ratings agency.

"While often accused of being too close to company management of their existing clients, CRAs have also been accused of engaging in heavy-handed "blackmail" tactics in order to solicit business from new clients, and lowering ratings for those firms .

For instance, Moody's published an "unsolicited" rating of Hannover Re, with a subsequent letter to the insurance firm indicating that "it looked forward to the day Hannover would be willing to pay".

When Hannover management refused, Moody's continued to give Hannover Re ratings, which were downgraded over successive years, all while making payment requests that the insurer rebuffed.

In 2004, Moody's cut Hannover's debt to junk status, and even though the insurer's other rating agencies gave it strong marks, shareholders were shocked by the downgrade and Hannover lost $175 million USD in market capitalization."

And another poster offered a perspective on the effects of the GFC which were largely caused by the financial institutions

When are the criminal proceedings going to start?

Much of this amoral get rich quick economic alchemy was done on UK soil to be signed off by the US based ratings agencies.

Why one Earth were these economic vandals not "presumed guilty and fast tracked to "justice"" like the looters?

One rule for the rich and another for the rest of us, that's why. Justice has become a commodity (health, education, public infrastructure, Parliamentary influence) to be traded just like everything else in this disgusting neo-conservative wet dream.

To put it in perspective the riots have been estimated to have inflicted economic damage to the tune of around £100 million, so if the riots had spread and increased to inflict economic damage at £200million a week it would have taken another 130 odd years of continuous rioting, looting and arson (at the worst level ever seen in this nation) to inflict economic damage to match the (Conservatively estimated) £1.376 trillion (£1,376,000,000,000) that the British political elite have given (virtually no strings attached) to the British banking elite in odrer to pay off their reckless gambling debts.

Mountain sized cash piles of that debt were gambled on AAA rated junk (CDOs) that were given glowing ratings by corrupt ratings agencies that were being paid handsomely by the scammers that were selling this **** to the British banks in the first place.

The main beneficiaries of these blatant and disgusting scams were the incompetent/evil people that designed these toxic debt bundles and the incompetent/evil Credit Agencies that were paid vast sums in to dress these toxic liabilities up as top notch assets with AAA ratings. None of these people have faced criminal charges, virtually all of them still have staggeringly well paid jobs in the financial sector and many have personal fortunes of tens or hundreds of billions.

The losers are us ordinary working people, the Britsh political elite decided that they would cripple the real economy of the nation in order to prop up the revoltingly corrupt system, in which most of the MPs themselves and the economic elite they serve had huge vested interests.

It is never too late to do like Iceland did and refuse to pay these debts that do not belong to us, the bankers themselves should pay the £1.3 trillion back, if they can't do it they go bankrupt and face criminal charges for corporate negligence at the least and fraud/corruption/recketeering etc for the most egregious profiteers.
.

http://www.guardian.co.uk/business/...t-of-interest?commentpage=2#start-of-comments

 

[basilio]

I thought this story added something to the discussion.

Global finance has dysfunction at its heart

Sound fiscal policy alone won't solve this debt crisis. We need structural reform of the entire financial system


Ha-Joon Chang
guardian.co.uk, Monday 8 August 2011 18.08 BST



The world economy is in turmoil again. We have seen two weeks of near-universal falls in major stock markets, prompted by the spread of the eurozone crisis to Spain and Italy, the phony fiscal crisis in the US manufactured by the Republicans, and the economic slowdown around the world. The first ever downgrading of the US debt by Standard & Poor's last weekend has certainly added to the drama of the unfolding events.

The debate focuses on how budget deficits should be controlled, with the dominant view saying that they need to be cut quickly and mainly through reduction in welfare spending, while its critics argue for further short-term fiscal stimuli and longer-term deficit reduction relying more on tax increases.

While this debate is crucial, it should not distract us from the urgent need to reform our financial system, whose dysfunctionality lies at the heart of this crisis. Nowhere is this more obvious than in the case of the rating agencies, whose incompetence and cynicism have become evident following the 2008 crisis, if not before. Despite this, we have done nothing about them, and as a result we are facing absurdities today – European periphery countries have to radically rewrite social contracts at the dictates of these agencies, rather than through democratic debates, while the downgrading of US treasuries has increased the demands for them as "safe haven" products.

http://www.guardian.co.uk/commentis...nce-dysfunction-at-heart?INTCMP=ILCNETTXT3487