The rating agencies broke the bond of trust in them

The rating agencies broke the bond of trust in them
# 23 October 2008 10:04 (UTC +04:00)
Baku. Vahab Rzayev – APA-Economics. As the hunt for the culprits of the global financial crisis intensifies, the heads of the world’s big ratings agencies have been the latest to feel the political blowtorch.
Henry Waxman, the chairman of the House of Representatives Oversight Committee, is on the hunt for Wall Street’s villains.
Having already publicly filleted the chief executive of failed investment bank, Lehman Brothers, he is now sharpening his knives in the direction of the big ratings agencies.
"The story of the credit-rating agencies is a story of a colossal failure," Mr Waxman said.
Mr Waxman’s committee is investigating just why the likes of Standard & Poor’s and Moody’s kept awarding gold stars to the toxic mortgage-backed investments that have sent markets everywhere into free-fall.
He says the credit-rating agencies occupy a special place in US financial markets.
"Millions of investors rely on them for independent, objective assessments. The rating agencies broke this bond of trust," he said.
The problem was the ratings agencies were not as independent as many investors thought.
That was because the issues of dodgy mortgage securities were paying the agencies for their sought-after seal of approval.
Republican Congressman Christopher Shays says the ratings agencies were not as independent as many investors thought.
"When the referee is being paid by the players, no one should be surprised when the game spins out of control," he said.
Among the evidence presented by the committee was an exchange of emails between two Standard & Poor’s employees about a certain mortgage-backed investment.
"This deal is ridiculous," wrote the first employee.
"I know it definitely does not capture half the risk" replied the other.
"We should not be rating it," declared the first.
"We rate every deal," said the other employee.
"It could be structured by cows and we would rate it."
Standard & Poor’s president Deven Sharma insisted the exchange did not reflect the agencies culture and he said the company was moving to improve the way it awards investment ratings.
"Let me state up front that we recognize that many of the forecasts we used in our ratings analysis of certain structured finance securities have not borne up," he said.
There was also a mea culpa of sorts from Moody’s chief executive, Ray McDaniel, who told the committee his agency had known for some time the mortgage market was in trouble.
"We did not however anticipate the magnitude and speed of deterioration in mortgage quality or the suddenness of the transition to restrictive lending," he said.
But many congressmen like Massachusetts Democrat Stephen Lynch were not swayed.
"I have a lot of people in my district who feel that they have been defrauded and they are as mad as hell and they think that in light of what has happened to them, that someone ought to go to jail," he said. www.abc.net.au
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