...and then there's the credit rating agencies, classifying all those (now known as) toxic assets as AAA.
“Let me read this email to you. It’s a series of instant messages between Standard & Poor’s officials that were sent on April 7 2007.”
The speaker is John Yarmuth, a Democratic Congressman from Kansas. It’s Oct. 22, 2008, Yarmuth, a member of the House Committee on Oversight and Government Reform in Washington, D.C., is in the process of grilling two former executives at credit rating agencies, and one current one. (Ratings agencies represent just one of many players being assigned blame in the ongoing financial crisis.)
Yarmuth’s question is directed at Mr. Frank Raiter, the former head of the division in charge of rating mortgage backed securities at Standard & Poors.
“These employees are from the structured finance division,” Yarmuth goes on. “One writes: ‘By the way, that deal is ridiculous.’”
“The other writes back: “The model does not reflect even half of the risk.’”
“The first employee writes back: “Yeah, but we rate every deal. It could be structured by cows, and we would be rating it.’
“What exactly does this mean, Mr. Raiter, that the model ‘does not even capture half the risk?’”
Raiter takes a breath. “Collateralized Debt Obligations were driven by the diversity index,” he explains. “They are supposed to tell you if bonds are highly correlated or not. But I can remember days when I was requested to put ratings onto transactions I had not even seen.”
Rating the agencies - Yahoo! Finance
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