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How on Earth do the new massive financial regulatory changes not address the @#$%&* ratings agencies

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June 18, 2009 – Comments (18) | RELATED TICKERS: MCO

I have been blasting the ratings agencies here for what seems like years for being a major contributor to the financial mess that we find ourselves in today yet not being penalized one iota for their misdeeds.  The Big Picture's Barry Ritholtz has a similar opinion on this matter.  I love the rant that he had on the subject today.  As an added bonus, he slipped a "WTF" into his tirade, which always makes me laugh for some reason.

Who in the heck did the people at the ratings agencies pay off?  How has there not been a major change to the system in which the people that issue bonds are the ones that pay for the "ratings" and that government regulations mandate that ratings from officially recognized agencies be used by many institutions to determine what they can and cannot buy yet prevent competition in the sector?  What a racket.  No wonder Moody's is so profitable.  I absolutely cannot stand those guys. 

Someone with a reasonably big name, like The Motley Fool, should start its own truly independent ratings agency.  If it was done right, I'm sure that there would be a huge demand for unbiased research on this subject.  Heck a bunch of the smart folks that hang out here at CAPS could put their collective heads together and come up with better ratings for companies and bonds than the idiots at S&P, MCO, and Fitch have.

Obama Reform Plan Fails to Fix Whats Broken

This is a giant WTF from the White House. It implies that the team in charge STILL does not understand how the problem occurred.

The ratings agencies are not the only bad actors, but they are a BUTFOR – but for the rating agencies putting a triple A on junk paper, many many funds could not have purchased them, the number of mortgages securitized would have been much less, the insatiable demand on Wall Street for mortgage paper would have also been much lower.

Why is this important?  If mortgages originators couldn’t sell a mass amount of loans, they would not have had the need to give a mortgage to anyone  who could fog a mirror — and that means no Liar Loans, no NINJA loans, and  no huge subprime debacle.

Better Solution:  Take apart the ratings oligopoly! Eliminate the Pay for Play/Payola structure.  Strip  Moody’s S&P and Fitch from their uniquely protected status — they have proven they are neither worthy nor competent. Open up ratings to competition –including open source.

Deej

18 Comments – Post Your Own

#1) On June 18, 2009 at 12:04 PM, alstry (35.09) wrote:

Thumbs UP!!!!

But if TMF tried....the system would shut it down or discredit it.

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#2) On June 18, 2009 at 12:47 PM, russiangambit (29.17) wrote:

Also, they need to separate coimmercial from investment banking. They forced auditors to sprin off their management consulting arms after Enron . It is very similar with the banks, commercial and investment arms have to be separate period. I am very disappointed that this is not even being discussed.

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#3) On June 18, 2009 at 12:49 PM, shockedinvestor (< 20) wrote:

I am totally shocked that the new proposals do virtually nothing to change the way that the ratings are used and the rating agencies operate. It has made me totally lose faith in the administration's ability to deal with the financial crisis and their ability to make the changes that are critical for longer term growth and prosperity in the market place!!

Eliminate the requirement for ratings and allow for the free market to drive the ratings market for structured debt, is my suggestion. If they are worth the money then investors will pay for the anlaysis and if not, they will no longer be able to survive without the help of the mandated federal requirement for ratings. The fact that these companies (S&P, Moody's) have HUGELY benefitted from the mess we are in and will be allowed to benefit AGAIN as we climb out of this mess is unforgiveable. There is absolutely no incentive for them to do the right thing - they make money as the system fails and they make even more money as the system is repaired.  The government should either drop the ratings requirement if they do not want to be involved in oversight (as they seem not to) or provide the oversight that is required!!! Sh!t or get off the pot my friends...

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#4) On June 18, 2009 at 12:55 PM, maxnik0215 (64.88) wrote:

of course Moody's models "were not very accurate"... I hate those guys too... I'm not a great fan of Stock advisor service recommending them either....

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#5) On June 18, 2009 at 1:23 PM, shockedinvestor (< 20) wrote:

And to answer the question that was raised about who they paid off...I know that these guys all come from the same social circles and all live in the same neighborhoods in Connecticut (this includes the CEOs as well as the regulators in the Obama administration). Of course they aren't going to hurt their friends and neighbors by changing things!!!

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#6) On June 18, 2009 at 1:29 PM, FreundInvesting (29.32) wrote:

In my opinion, the ratings agencies told the Gov't to play ball or the US Credit Rating is the next to get the axe. We all know AAA is no longer realistic for the US, and stricter regulations on ratings would certainly show that quickly.

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#7) On June 18, 2009 at 1:40 PM, TMFDeej (99.43) wrote:

That's an intersting theory, Freund.  I'm surprised that I haven't seen that mentioned more often.  If true, it could be either the agencies are holding the potential for a downgrade over the government's head or that the government in fact does not want more accurate ratings because people would be horrified by what they saw...including its own rating.

Deej

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#8) On June 18, 2009 at 2:07 PM, Tastylunch (29.18) wrote:

Extremely Extremely disappointing changes

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#9) On June 18, 2009 at 2:25 PM, brwn8484 (89.15) wrote:

Not only do the new reg's ignore the ratings agencies, they ignore the real criminals and the politicians that are at fault with regard to the financial melt down.  It was a combination of the Government sponsored agencies along with criminal behavior by AIG and banks and politicians and ratings agencies and people in lending business and .... the list goes on and on.

You cant regulate morality any more than you can regulate the financial system.  Either you are honest and fair (like most Americans).... or you are a crooked scum bag low down dirty dog.  Even our elected leaders have been caught cheating at Taxes and no penalties are given.  No regulation will prevent the high level of theft and criminal behavior we have seen blatantly perpetrated against the middle class and lower class American citizen.  We are being lied to and manipulated and stolen from... again and again and again.  

Even the proposed regualtions are a scam!  Nothing in this regulation comes close to addressing the real culprits. But, who cares...our economy is already in toilet and vast amount of Americans will never see the same standard of living ever again.  Better get used to living in a third world country.  Thats what our leaders are trying to accomplish .... 

 

 

 

 

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#10) On June 18, 2009 at 2:50 PM, ByrneShill (75.13) wrote:

Man I was wondering the same damn thing. Roasting the rating agencies like little pigs on a bbq was step #1 of any financial reform. Now instead of baby back ribs all we get is boiled cabbage.

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#11) On June 18, 2009 at 2:56 PM, MattH42004 (30.08) wrote:

"the government in fact does not want more accurate ratings because people would be horrified by what they saw...including its own rating."

DING DING DING, We've got ourselves a winner folks. I would bet the above statement had more impact on this ABSOLUTE SHAM than we will ever know. You want to regulate leverage in the financial sector, I can agree with that. You want to bring some transparency and structure to the derivatives market, I can shout Hallelujah for that. But to not reform the very incompetent and corrupt institutions that were at the center of this whole freaking collapse will go down as one of the most memorable WTF moments of this whole ordeal. 

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#12) On June 18, 2009 at 4:07 PM, carcassgrinder (35.31) wrote:

I'm also miffed as to why we would choose the Fed to do the oversight and regulating when they are not obligated to report to Congress or the public.  So all the fraud that they uncover...all the favoritism they show...all the "regulations" that  they create to help those they like and crush those they don't....won't be reported to the public or congress.  We are just to assume they are doing the right thing?  WTF?

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#13) On June 18, 2009 at 4:17 PM, RookieQB (28.70) wrote:

Huge rec

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#14) On June 18, 2009 at 11:09 PM, brwn8484 (89.15) wrote:

We should be looking at the Govt Bozos that are continuing this criminal fleecing of America with the largest PONZI scheme ever created!  

 

"Since the onset of the financial crisis nine months ago, the government has become the nation’s biggest mortgage lender, guaranteed nearly $3 trillion in money-market mutual-fund assets, commandeered and restructured two car companies, taken equity stakes in nearly 600 banks, lent more than $300 billion to blue-chip companies, supported the life-insurance industry and become a credit source for buyers of cars, tractors and even weapons for hunting.

The effects are rippling into nooks of the economy far beyond Wall Street and Detroit’s troubled car industry. The massive intervention has shifted the way companies do business in a host of ways — not all of them intended by the government. Increasingly, companies big and small are competing on the basis of their ability to tap government money. A divide is opening between gets and get-nots."

 

Indeed, the party in power may well become the biggest "pay for play"  extortionist in the history of the world.  And I fear the middle class is already dead as we speak.  We can all be sure of one thing... Our lives, our country, our freedoms are being taken away one at a time while the vast majority of politicians sits silently on the sidelines or trumpets the standard party line thst wall street and bankers were the sole criminal conspiritors in this deepening and sad financial mess.

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#15) On June 18, 2009 at 11:11 PM, Imperial1964 (97.75) wrote:

It's far easier and politically feasable to pretend to fix something rather than actually fix it.

There should be a CAPS for bonds.  Oops, did I write that?  I should have patented it first.

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#16) On June 18, 2009 at 11:33 PM, brwn8484 (89.15) wrote:

Hey... thats a really good idea.   I think MF should start a ratings system for fixed income investments!

 

 

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#17) On June 21, 2009 at 2:21 PM, alexxlea (65.97) wrote:

So many things wrong so little time.

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#18) On June 23, 2009 at 5:26 PM, jubling (68.46) wrote:

Is there a law against suing these rating companies for the rating mistakes they have done. Can one file a class acton suit against them like when you lose money from stock market trades that were proven to be manipulated. I mean anyone...lawyers out there or are they afraid because there is no American justice anymore. Someone has to pay for all of this and I don't mean the future generation

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