The House Government Oversight Committee led by Henry Waxman (one of my favs) held a hearing today on the credit rating agencies.
I listened and they got pasted, rightfully so. The whole system of rating securities is compromised by conflicts of interest. Agencies like S&P and Moody’s are paid to rate securities by the companies that issue them. And clearly, they have failed miserably giving AAA ratings to stuff that is essentially junk.
The hearing today had good excerpts from insider emails and IMs including this one from S & P:
Rahul Dilip Shah: btw: that deal is ridiculous
Shannon Mooney: I know right … model def does not capture half of the risk
Rahul Dilip Shah: we should not be rating it
Shannon Mooney: we rate every deal
Shannon Mooney: it could be structured by cows and we would rate it.
Rahul Dilip Shah: but there’s a lot of risk associated with it. I personally don’t feel comfy signing off as a committee member
A lot of people are going to go to jail before this is all over.
(h/t: Calculated Risk)