Matt Taibbi has come out with an excellent article that looks at the role of the ratings agencies, those institutions that are supposed to protect the interests of investors by providing accurate ratings for the investments issued by companies, in causing the financial collapse of 2008. Their role has been criticized before (I wrote about it back in 2008 here and here) but Taibbi says that recent revelations show that their culpability is even worse than was thought.
Thanks to a mountain of evidence gathered for a pair of major lawsuits by the San Diego-based law firm Robbins Geller Rudman & Dowd, documents that for the most part have never been seen by the general public, we now know that the nation’s two top ratings companies, Moody’s and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.
In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.
“Lord help our fucking scam . . . this has to be the stupidest place I have worked at,” writes one Standard & Poor’s executive. “As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it,” confesses a high-ranking S&P analyst. “If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value,” complains another senior S&P man. “Let’s hope we are all wealthy and retired by the time this house of card[s] falters,” ruminates one more.
Thanks to these documents, we now know how that happened. And showing as they do the back-and-forth between the country’s top ratings agencies and one of America’s biggest investment banks (Morgan Stanley) in advance of two major subprime deals, they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy – how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities. It’s the black box in the American financial airplane.
Taibbi goes onto discuss case after case where the agencies knowingly gave inflated credit ratings to investments. He ends.
What’s amazing about this is that even without a mass of ugly documentary evidence proving their incompetence and corruption, these firms ought to be out of business. Even if they just accidentally sucked this badly, that should be enough to persuade the markets to look to a different model, different companies, different ratings methodologies.
But we know now that it was no accident. What happened to the ratings agencies during the financial crisis, and what is likely still happening within their walls, is a phenomenon as old as business itself. Given a choice between money and integrity, they took the money. Which wouldn’t be quite so bad if they weren’t in the integrity business.
The corruption in the financial sector in this country is really something. The fact that our prisons are not packed with the top executives of the banks, investment houses, and ratings agencies is a reflection of how the ruling class protects itself.