Moody’s: They Lied to Us
DAVOS
The 2008 Norris award for willingness to be beaten up goes to Raymond McDaniel Jr., the chief executive officer of Moody’s. He came to the World Economic Forum.
At a panel today, it was pretty genteel, but it was clear that people are unhapoy with the performance of the ratings agencies. They rated as AAA a lot of structured finance products that are no longer worth much.
Mr. McDonald opened up by admitting that, “In hindsight, it is pretty clear that there was a failure in some key assumptions that were supporting our analytics and our models.”
But then he passed the buck. One reason for the failure was that the “information quality” given to Moody’s, “both the completelness and veracity, was deteriorating.” Translation: Wall Street lied to us.
May I suggest Moody’s should release details of where it feels it was misled?
Mr McDaniel conceded there was another problem. The agencies did not do anything about the deterioration of underwriting standards caused by what is called the “originate to distribute” model, in whcih the bank made the loan intending to quickly package it into securities and sell it off.
As Guillermo Ortiz, the governor of the Mexican central bank, put it, “There is a problem of misaligned incentves.” There were lots of fees to be had if the loans were made, good loans or bad.
“One of the gaps that opened was a failure of any party to step into that gap to determine if that asset was a good loan,” Mr. McDaniel said. He reeled off some others that could have stepped into the gap, but conceded the ratings agencies might have done so.
The ratings agencies are among the leading candidates for the scapegoat of this financial disaster, and it is clear they performed poorly.
But, Mr. Kielholz of Credit Suisse asked, “What happened to caveal emptor?”
“There seems to be an entitlement that rating agencies be right,” he said, suggesting that “highly compensated analysts” for institutional investors should have done their own research.
http://norris.blogs.nytimes.co…5/moodys-they-lied-to-us/