Ratings Agency Regulation

[Magox]

I'm not one for excess regulation, but this I like.

 

The U.S. Senate approved a proposal to let regulators decide who rates asset-backed securities after investors said Standard & Poor’s and Moody’s Investors Service assigned inflated assessments to mortgage bonds because the companies were paid by Wall Street firms selling the debt.

 

The Senate approved an amendment to the financial overhaul legislation today that would create a ratings board overseen by the Securities and Exchange Commission. The panel would assign a credit-rating company to rank an offering.

[John Adams]

I'm not one for excess regulation, but this I like.

 

The ratings agencies were influenced by the Goldman Sach's of the world but the scarier thing is that they were rating tranches of subprime mortgages as AAA rated even before the inflluence started. They were completely idiotic and not at all checking on the bonds they rated AAA because if they did, they would have found out that in lots of them, more than 50% of the underlying mortgages were secured with no down payment, adjustable ARMs, and for people with thin-file credit (ie, people who had great credit because they'd never had almost any credit).

 

Somehow packaging ****ty subprime mortgages all together in one giant pile of **** convinced Moody's to rate things AAA. No amount of regulation can overcome that kind of stupidity.

[Magox]

The ratings agencies were influenced by the Goldman Sach's of the world but the scarier thing is that they were rating tranches of subprime mortgages as AAA rated even before the inflluence started. They were completely idiotic and not at all checking on the bonds they rated AAA because if they did, they would have found out that in lots of them, more than 50% of the underlying mortgages were secured with no down payment, adjustable ARMs, and for people with thin-file credit (ie, people who had great credit because they'd never had almost any credit).

 

Somehow packaging ****ty subprime mortgages all together in one giant pile of **** convinced Moody's to rate things AAA. No amount of regulation can overcome that kind of stupidity.

Corporations are shopping these ratings agencies to see who is going to give them the most favorable rating, and since it is a for-profit business, there in lies the conflict of interest. There is one potential pitfall that I can think of off-hand, and that is since the SEC would create a credit-rating board, composed mostly of investors, which would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages or US Treasury bonds, that they may be reluctant to rate our Treasury bonds the way they should, considering a wing of the government would have oversight on that decision. That also would present yet another conflict of interest.

 

GG, what's your thoughts regarding this topic?

[DC Tom]

Corporations are shopping these ratings agencies to see who is going to give them the most favorable rating, and since it is a for-profit business, there in lies the conflict of interest. There is one potential pitfall that I can think of off-hand, and that is since the SEC would create a credit-rating board, composed mostly of investors, which would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages or US Treasury bonds, that they may be reluctant to rate our Treasury bonds the way they should, considering a wing of the government would have oversight on that decision. That also would present yet another conflict of interest.

 

GG, what's your thoughts regarding this topic?

 

I've been thinking about this today, and I think the biggest issue I have with the idea is that it simply doesn't address the core issue: the independence and objectivity of the rating agencies and process. Fundamentally, it just passes the conflict of interest from the financial industry to the government...and we've already seen, in Fannie and Freddie, that all protestations to the contrary aside the government is not an unbiased arbiter of the financial industry and is willing to use federal agencies to its own purposes.

 

That, frankly, worries me. I don't see how it's any better a system than investment banks shopping around for ratings.

[GG]

GG, what's your thoughts regarding this topic?

 

Haven't really looked into this yet, but one thing does jump out - the legislation was proposed by an SNL writer?

 

If I had to take a wild guess I'd say DC Tom has a better grasp than Al Franken

[OCinBuffalo]

Al Franken is the man!

and we've already seen, in Fannie and Freddie, that all protestations to the contrary aside the government is not an unbiased arbiter of the financial industry and is willing to use federal agencies to its own purposes.

 

That, frankly, worries me. I don't see how it's any better a system than investment banks shopping around for ratings.

Clearly, no, he is not. Especially not if this is gonna be a Barney Frank/Chris Dodd show all over again. Where, the truth is less important than the word "should", and financial decisions are made on wishful thinking.

 

What's to stop Frank/(Insert Dodd Replacement here) from deciding to downgrade a bond because the issuer:

1. Doesn't believe in global warming

2. Didn't give them campaign money

3. Doesn't believe in social justice

 

People that will put their political agenda, like um, politicians?, ahead of the truth, in this case a securities rating, can not be allowed to regulate these things.

[Magox]

Clearly, no, he is not. Especially not if this is gonna be a Barney Frank/Chris Dodd show all over again. Where, the truth is less important than the word "should", and financial decisions are made on wishful thinking.

 

What's to stop Frank/(Insert Dodd Replacement here) from deciding to downgrade a bond because the issuer:

1. Doesn't believe in global warming

2. Didn't give them campaign money

3. Doesn't believe in social justice

 

People that will put their political agenda, like um, politicians?, ahead of the truth, in this case a securities rating, can not be allowed to regulate these things.

I don't believe their intentions would be quite that nefarious.

[DC Tom]

The amendment is also backed by Sen. Roger Wicker (R-Miss.), who overheard a Franken speech on the measure on the Senate floor and was intrigued

 

Yeah, that's a great reason to back an amendment. Not because it's worth two *****. But because it's "intriguing".

 

Is there anyone in the Senate with more than two working brain cells?

[OCinBuffalo]

When you speak, all I see is "DEMOCRAT BAD! REPUBLICAN GOOD!"

 

I know you are a mindless partisan hack of the worst sort. So let me speak on your level.

My level? After your performance the other day, clearly you are operating at the lowest level we apparently allow on this board.

 

I agree, right now, I say a hell of a lot of Democrat BAD!. But that is because, a lot of what Democrats have been doing for the last 10 years is terrible. Stop the bad behavior and I will stop complaining. It's really as simple as that.

 

My main issues with Democrats:

1. The entire anti-war thing is phony as hell, and there is no excuse for using wartime for political gain. This has never been done to this extreme before by a political party(maybe the Civil War), and now it is available to both parties. Great. I will be just as pissed at Republicans if and when they do the same thing.

 

2. Global Warming BS. It is beyond obvious what has been tried, what has failed, and why at this point. Democrats love to talk about conspiracies, except of course, when 30% of their party is caught being in one. It was such an attractive story: "Big Business Bad, and is killing the planet", that they couldn't resist doing anything to propagate this myth. Of course, the inevitable impact on the economy is "irrelevant". This is the first time in my life that Democrats care less about the economy than Republicans do. WTF is that? What does Democrat even mean anymore?

 

3. What happened to the Democrats looking out for the American worker? Supporting illegal immigrants, and massive deficit spending is not looking out for the American worker. It is the exact opposite of looking out for the American worker. Oh, wait, I remember now, just like in 1-2, Democrats will forget about their principles if it means more votes. So again, I ask, what does Democrat even mean?

 

My grandfather was an elected Democrat for 30 years. I learned what it meant to be a Democrat from him. If he was alive today, at the very least he would not be happy. In fact, the stories I heard while standing around the fire barrel at election time make me think many a Democrat head would be getting cracked, both figuratively and literally, if he was to come back.

[OCinBuffalo]

When you speak, all I see is "DEMOCRAT BAD! REPUBLICAN GOOD!"

 

I know you are a mindless partisan hack of the worst sort. So let me speak on your level.

Sorry my last one wasn't low level enough.

 

How about: "Whaaa, OC is saying things I can't reasonably argue with, again Whaaa!"

 

or: You can't argue with me, so, instead you play the victim card. I'm not being fair? Well, listen pal, I will keep telling the truth, and you go right ahead and keep calling me a bully for doing it. You have yet to argue effectively against the content of what I am saying, in this or any other thread. Instead all you keep doing is attacking the messenger. The difference between us is: all I care about is the content, all you care about is the process.