Ratings Agencies “Put System at Risk,” CEO Says: “Kool-Aid Drinking Lapdogs”
http://www.marketwatch.com/news/story/ratings-agencies-put-system-risk/story.aspx?guid={6A0F18B2-1DB3-4D77-89C7-B5EE7C1829D2}
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) –
Credit rating agencies put the global financial system at risk because they had to be lapdogs, not watchdogs, to survive, a top CEO testified Wednesday.
The three major agencies – Moody’s, Standard & Poor’s and Fitch — were caught in a race to bottom, forced to lower their standards in an attempt to maintain their market share, said Raymond McDaniel, chief executive officer of Moody’s, who testified on Capitol Hill on Wednesday.
“We drank the ‘Kool-Aid,’” McDaniel wrote in an internal memo released Wednesday.
That race to the bottom was very lucrative in the short-run for the companies, but disastrous for the global economy in the long haul, said Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee. Waxman said revenues at the three ratings agencies doubled between 2002 and 2007 to $6 billion, while Moody’s had the highest profit margin of any company in the S&P 500 for five years running.
The three agencies rate financial securities on the risk that they won’t be paid off.
Between 2002 and 2007, the agencies rated a flood of mortgage-related securities issued by Wall Street firms, giving many of the securities a coveted AAA rating at the time, only to downgrade most of them as house prices tanked and defaults spiked. The subsequent collapse in the value of those securities has taken the global financial system to the “brink of the abyss,” in the words of the head of the IMF.
“The story of the credit rating agencies is a story of colossal failure,” Waxman said. “Millions of investors rely on them for independent, objective assessments.”
October 23rd, 2008 at 8:15 am
Is Mac missing Mitt?
From Crimson White
By Jonathan Reed
Published: Wednesday, October 22, 2008
Picture it: Nov. 4, 2008. Brian Williams announces to the world who will be the next president and vice president of the United States. The historic Democratic candidate and his experienced Delaware sidekick hang their heads in defeat. The President-Elect steps up to the microphone to thank the nation and assure them that he and his running mate will enact their plan to resolve the massive economic meltdown that has plagued the greatest nation in the world.
After a few more remarks, the vice-president-elect steps up to the podium to further explain the economic plan for the next four years; the VP who is the heir apparent to the Grand Old Party: Mitt Romney.
Of course nobody can be sure who will give that acceptance speech on Nov. 4, or, if recent history is any indication, that it will even happen on that day. One thing we can be sure of is that a former Massachusetts governor will not accept the vice presidency. On Aug. 29, Republican candidate John McCain chose as his running mate the unknown Alaska governor Sarah Palin. Palin’s selection was designed to bolster the party’s right wing and overcome the “excitement gap” between the two candidates.
Roughly two weeks later, the terms by which this election would be decided changed dramatically. The primary focus is no longer on which candidate would pull soldiers out of Iraq or which one hangs out with terrorists. Voters want to know which candidate will help them keep their jobs, their assets and their retirement accounts.
The strengths of McCain’s running mate, her straight talk, her “hockey mom” attitude, her feistiness, her zingers, all worked in the campaign of Sept. 13, but on Sept. 14 what McCain needed by his side wasn’t a pit bull with lipstick, it was Romney.
Few candidates in the primaries from either party could even try to compete with Romney’s economic experience. He holds a J.D. from Harvard Law School and an M.B.A. from Harvard Business School; he founded Bain Capital, a large financial firm that controls billions of dollars in assets; and he was the CEO of the 2002 Winter Olympics in Salt Lake City. John McCain admits he lacks economic experience and expertise, and his selection of Sarah Palin did little to change it. A McCain-Romney ticket, however, would be hard pressed to yield the economic edge to the Democrats.
Most of us know little about derivatives, subprime mortgages, predatory lending and whatever else has caused this crisis. How can we expect to fix it if we aren’t sure exactly what we’re dealing with? A Romney ticket would have been able to respond to that question confidently — we understand Wall Street, vote for John McCain and we’ll make it through.
In the Midwest, the region most hotly contested between the two candidates, the message of economic salvation would be music to the ears of voters just looking to make ends meet. Why should they gamble with an untested Democrat when they could have an experienced Republican with a financial mogul at his right hand? Ohio and Pennsylvania, if not completely red on electoral maps, would be a nice shade of pink. Michigan, the state where Romney was born, would not have had a mass exodus of GOP campaign workers, at least not because of a failed campaign. Retirees in Florida would feel their investments would be safer in the hands of the Arizona senator’s administration than in the hands of his Illinois counterpart.
Some would question his positions on abortion and same-sex marriage as well as his religion, but these voters are unlikely to abandon the Republican Party in droves, particularly not towards a man who has been called the 110th Congress’s “Most Liberal Senator.” They could even pass off his perceived deviation from the party line as his being a “maverick,” just for good measure.
Hindsight is 20/20, but with the poll numbers the way they are, don’t you think McCain is missing Mitt a little?