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”
- "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."
No states rated by Moody’s will default this year
By Martin Z. Braun
Jan. 6 (Bloomberg) -- U.S. municipal governments, facing more than $100 billion in budget deficits this year and the expiration of federal stimulus funds, will be able to weather lower demand for debt and increased borrowing costs, Moody’s Investors Service said.
No states rated by Moody’s will default this year, although a few local governments may miss payments, the company said in a report. Few U.S. municipal governments borrow to fund short-term operating needs, the rating company said.
“Most municipal debt is used to finance capital projects, and governments have the ability to defer projects if they cannot finance them at rates that make sense,” said Moody’s analyst Naomi Richman. “Even many issuers of short-term cash- flow notes could draw down their available cash reserves.”
The $2.8 trillion municipal bond market has been buffeted in the past three months by predictions of mass defaults and a rush to issue federally subsidized Build America Bonds before it expired on Dec. 31. Banking analyst Meredith Whitney said she expected 50 to 100 “significant” municipal bond defaults in 2011 totaling “hundreds of billions.”
Whitney, who correctly predicted Citigroup Inc.’s dividend cut in 2008, has written a 600-page report on the financial health of the 15 largest states, which hasn’t been released publicly. She is applying to the U.S. Securities and Exchange Commission to start a ratings firm to compete with Moody’s and Standard & Poor’s, saying the companies lost credibility when billions of mortgage-backed securities they rated AAA were later downgraded to junk.
In a default study published last year, Moody’s found 54 defaults in municipal issuers it rated from 1970 to 2009. Only three were general governmental defaults. In 2010, $2.52 billion of municipal bonds defaulted, compared with $14.5 billion of corporate bonds, according to Distressed Debt Securities Newsletter. There were no defaults in 2010 by state or local governments rated by Moody’s. More Martin B. Braun Articles