Rating Agencies attempt to explain their overall greed and incompetence

4/23/10
Must see TV continues this week with yet another hearing on the “Wall Street and the Financial Crisis”. This week’s host is the Permanent Subcommittee on Investigations with guest appearances by representatives from Standard and Poor’s and Moody’s. During the housing boom, they were the equivalent of the USDA rating an insect infested beef carcass as U.S. Prime.

Here are some of today’s highlights from today’s episode:Eric Kolchinsky, who was in charge of the Moody's unit that rated subprime collateralized debt obligations (CDO’s):

• “people across the financial food chain, from the mortgage broker to the CDO banker, were compensated based on quantity rather than quality".
• "The situation was no different at the rating agencies."
• “I believed that to assign new ratings based on assumptions which I knew to be wrong would constitute securities fraud”

Raymond McDaniel, chairman and chief executive of Moody’s:

• "We, like many others, did not anticipate the unprecedented confluence of forces that drove the unusually poor performance of subprime mortgages in the past several years".
• Moody's "is certainly not satisfied with the performance of our ratings during the unprecedented market downturn of the past two years."

Frank Raiter, (former managing director at Standard and Poor's and head of the residential mortgage unit):

• "success bred complacency and an aversion to change" within top management of rating agencies.
• Senior managers were "focused on revenue, profit, and ultimately share price"

3 rating agencies competing for another mortgage portfolio