One of the great pleasures of following business ethics on the web is reading Alain Sherter’s columns on BNET. He is well informed and if you read his columns regularly you will get a good feel for how things really work in the financial industry. But that’s not my favorite thing about his writing. It’s the outrage. See if you notice any in the passage below –
Conflicts of interest? Sucking up to Wall Street? Dodging accountability? Tell us something we didn’t know, Bill! Harrington’s justified disgust with Moody’s also begs the question of why he stayed at the firm for more than a decade. The last four of those years were spent within the company’s structured finance unit, which rubber-stamped dodgy mortgage-backed securities with AAA ratings. In the letter he even says he remains “extremely proud” of his work at Moody’s.
Uh, why? Once upon a time, it meant something for a security to be rated AAA — namely, that there was less than a 1 percent chance it would blow up. But during the housing bubble that designation came to be meaningless, as Moody’s, Standard & Poor’s and Fitch effectively rented out their ratings to Wall Street firms selling subprme MBS and collateralized debt obligations. When the financial crisis struck, the vast majority of these securities incurred big losses, while some completely vaporized. Why did the raters do it? Easy: Big banks paid them to.
The irony of the United States of America being downgraded by these corrupt charlatans of finance should never be lost on any of us. Why rating industries have not been aggressively prosecuted for their conduct during the housing boom, I have no idea. How can you value securities composed of 1/3 sub-prime loans (notice the phrase, sub prime, in the title?) as triple A investments? Yet these organizations continue to rake in the cash for opinions which are often little more than their speculation. But they can’t even be honest about their speculations. As you can read in the article, they will change their point of view, if only to please the right people.
We can do better than let these organizations have significant influence over our money or our society.
- Moody’s managers pressured analysts: ex-staffer (huffingtonpost.com)
- 2 Out Of 3 Ain’t Bad: Fitch Confirms US AAA Rating (businessinsider.com)
- Former Moody’s Staffer Blows The Whistle: We Were Pressured To Give Glowing Ratings To Derivatives (crooksandliars.com)
- #S&Pfail (thisisgoingtobebig.com)
- DoJ now probing S&P over mortgage-bond ratings (hotair.com)