The Last Mystery of the Financial Crisis

[Adsos Letter]

Last edited Fri Jun 21, 2013, 04:24 PM - Edit history (1)

EDIT: DU'er TakeALeftTurn previously posted this in GD.

http://www.democraticunderground.com/10023059638




Source:
By Matt Taibbi
June 19, 2013 9:00 AM ET
Rolling Stone "Politics"

It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it

What about the ratings agencies?

That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.

But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?

Read more: http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619#ixzz2WsRymOlz

Long article, 4 pages.



EDITED TO ADD: As DU'er "hollysmom" noted, we've all been pretty well aware of the role of bogus ratings in the whole financial debacle. Taibbi notes that public awareness in his piece, and writes on the further clarification rendered by documents collected for a lawsuit:

It's not like the iniquity of the ratings agencies had gone completely unnoticed before. The Financial Crisis Inquiry Commission published a case study in 2011 of Moody's in particular and discovered that between 2000 and 2007, the agency gave nearly 45,000 mortgage-backed securities AAA ratings. One year Moody's doled out AAA ratings to 30 mortgage-backed securities every day, 83 percent of which were ultimately downgraded. "This crisis could not have happened without the rating agencies," the commission concluded.

Thanks to these documents, we now know how that happened.

Read more: http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619#ixzz2WsXzIuKA

[hollysmom]

1. This was no mystery to me, They were in collusion -

put them in jail or reveal them for the frauds to all

[Adsos Letter]

2. I agree, and I don't really think it has been a mystery to most of us

I was interested in his discussion of the documents.

I also doubt it will be the "last mystery" to come out of this whole mess.

[Warpy]

3. The SEC has long been toothless even before Stupid packed it

with his cronies. Look how long it took them to do anything about Madoff, and that whole case was tied up with a pretty ribbon and dropped right into their laps--repeatedly.

People at the SEC should go to prison along with the honchos at Moody's and S&P. If any of them had done their jobs properly, the mess would never have happened.

[longship]

4. Of course the game was rigged. Here's how.

From 2010, Michael Lewis delved into this matter.

Of course, the ratings agencies were complicit. They were being paid by the very same Wall Street Banks whose toxic products they were rating.

How else could have turned out?

When a bunch of low rated mortgage bonds are duplicated via Credit Default Swaps (CDS) and then bundled into new bonds, the ratings agencies looked at them as a whole new deal, instead of what they were, rebundled bonds from a previous lower tranch. In other words, the worst of the worst. But the synthetic Collateralized Debt Obligation (CDO) hid all of that from view.

Here's a conversation with a Moody's employee as related in Lewis's book:

"Vinny has a tell," said Moses. "When he gets excited he puts his hand over his mouth and leans his elbow on the table and says, 'Let me ask you a question about this ...' When I saw the hand to face I knew Vinny was on to something."

Here's what I don't understand, said Vinny, hand on chin. You have two bonds that seem identical. How is one of them triple-A and the other not?

I'm not the one who makes those decisions, said the woman from Moody's, but she was clearly uneasy.

Here's another thing I don't understand, said Vinny. How could you rate any portion of a bond made up exclusively of subprime mortgages triple-A?

That's a good question.

Bingo.

A very highly recommended read. Michael Lewis lays it all bare in a very entertaining yet informative narrative from the perspective of some very smart people who saw what was really happening and bet against it.

The Big Short: Inside the Doomsday Machine. By Michael Lewis

You'll learn how the Wall Street banks screwed the world.

[Adsos Letter]

6. Thanks for the recommendation, longship.

Moneyball was certainly a good read, so I look forward to receiving my copy of The Big Short.

I knew about CDO's, CDS', and tranches (which is only to say that I got my understanding from the news and internet) but I've not read the actors in their own words. I'll want to make sure my blood pressure meds have been refilled before I do.

Have you seen the FRONTLINE report on Brooksley Born? It's called "The Warning." If you've not, I'd recommend it. If they had listened to her this whole disaster could have been avoided (maybe). Here's the link.

http://www.pbs.org/wgbh/pages/frontline/warning/view/

[blkmusclmachine]

5. DC is a racket.