On rating agencies getting away with murder on the subprime disaster

See, I still don’t understand why it is business as usual for Fitch, Moody’s, Standard & Poor’s and the smaller rating agencies.

Surely they should be responsible for some of the effects of their ill-fated ratings. We all focus on the usual links on the lie chain, borrowers lying on their income, mortgage sellers looking the other way, or banks being to slow in leaking the amount of toxic paper they knowingly hold on their balance sheets.

Nevertheless, the link that was meant to oversee the investment quality of these mortgage-backed securities just didn’t do a good job and helped extend worldwide the poison and widen the size and level of damage (some would call it, spreading the global risk).

The Fed’s low interest rates, buyers, surveyors and mortgage lenders set the house on fire, but rating agencies spread it to the rest of the neighbourhood by giving them top investment grades that, simply, weren’t there. Surely they should have some level of responsibility for spear-heading the subprime boom through awful business practices.

It is like the time I purchased a TomTom navigator from a Dixons store. After a week it died. I went back to the store and they advised me to contact the manufacturer, since they “only sold them”. A long wait started, sending my week-old device back and forth to the manufacturer until the problem was sorted, and at no point Dixons was part of the equation.

Didn’t I trust Dixons judgement when selling quality goods? How could they just wash their hands when the going went tough? Surely they had some level of responsibility in enticing me to buy a particular model and brand.

Ultimately the buying decision was mine, true, but I relied on Dixons for good customer service (good advice, good selection of reliable products and suppliers). How could they just wash their hands and stand aside?

At least I just paid for the navigator through Dixons, I didn’t pay them to advise me whether that particular TomTom was a “good investment”, otherwise I would be mad at Dixons, not TomTom.

On May 1, Standard & Poor’s announced that it will stop rating mortgage-backed securities because:

We will not issue any new ratings until we are comfortable with the predictability of the performance […]

From AA+ to ??+ in no time! No comments.

.Calvin

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