On The Ratings Agencies

From Mother Jones:

Credit Rating Exec: “We Sold Our Souls to the Devil”
Internal documents show that while rating firms publicly defended their practices, executives privately wondered when the house of cards would fall. “

Nick Baumann

October 22, 2008 For years, credit rating agencies–the referees of Wall Street–insisted they were an impartial source of information, despite their financial reliance on the companies they rated. Then came the market meltdown–and a chorus of accusations that firms had artificially inflated their risk ratings to please their clients and gain a competitive edge. And now there’s plenty of evidence to suggest the “referees” were unduly influenced by the players.

According to internal documents released at a congressional hearing Tuesday, while rating agencies strenuously defended their independence publicly, some of their top executives acknowledged privately that they faced fundamental conflicts. As one executive at Moody’s, a major credit rating agency, put it following an internal discussion on the implosion of the subprime mortgage market, “These errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue.” The documents lend credibility to charges by Wall Street executives that the rating agencies deserve part of the blame for the current financial crisis. “The story of the credit rating agencies is a story of colossal failure,” said Henry Waxman (D-Calif.), the chairman of the House Committee on Oversight and Government Reform, which is holding a series of hearings to investigate the causes of the market meltdown. (Mother Jones also covered hearings on Lehman Brothers and AIG.)

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