With Friends Like Moody’s…

Good to see Moody’s rebuilding its franchise. Their aura of mystery is still reassuringly intact, two years after the subprime CDO ratings fiasco; as a bemused Firedoglake notes, in connection with two diametrically opposed, and politically charged, opinions about the tax cuts and their projected effect on the US credit rating:

Can someone tell me why the same guy, at the same ratings agency, does a 180 in less than one week, when the deal hasn’t changed an iota?

A cynic might think that the Dec 7th report was Moody’s putting all its credibility behind the deal to extend the tax cuts, while the Dec 12th report was Moody’s putting all its credibility behind a move to ensure Obama got no political credit for it, once the deal, that they had implicitly supported a week earlier, was looking much more certain. That type of maneuver will have a familiar feel to the bedraggled Obama, one suspects.

Anyhow, if you are shocked, shocked at the idea of credit rating agencies working a political angle, you can comfort yourself with the thought that no stratagem underpinned by all Moody’s credibility is going to be very threatening.

With those reminders of old and recent form, let us consider what Moody’s has to say about the Kemp v. Countrywide Home Loans Inc. case, wherein an erstwhile Countrywide employee strayed off the script and admitted that Countrywide typically failed to deliver mortgage notes to trustees for home-loan securities. If Countrywide (or BofA) wanted to have a credible party to show all was well in mortgage-land, it would need to be someone independent and with some investigative skills; but they’ve got Moody’s instead.

One notes in passing that the review by Moody’s is unaccompanied by full disclosure of Moody’s earnings on rating Countrywide securitizations. One also notes that Moody’s are surprisingly keen to acknowledge that the operational practices of securitizers fall within their purview. One wonders how compromised they would be by any revelation that there were wholesale failures to deliver mortgage notes properly into the trusts of Moody’s-rated issues.

Moody’s, unsurprisingly, says it ain’t so, for Countrywide, anyway, and Bank of America can breathe again, except that:

Confidentiality restrictions prevent Moody’s from saying which documents it reviewed, Forster said. The ratings company referred to the documents in a Dec. 9 report.

Relying on Moody’s opinions didn’t work out too well for any of the maimed operations now huddled under the Bank Of America umbrella: not Countrywide, nor Merrill Lynch, nor BoA itself, so let’s see how well “taking Moody’s word for it” works out, this time.

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  1. Random Blowhard

    Those foolish enough to trust Moody’s opinions about anything DESERVE the financial cataclysm that they will receive as a result. TBTF – Not just Wall Street banks.

  2. libhomo

    The worst thing is that tax cuts for the generate bubbles, which could push us into a depression. Yet, none of the ratings corporations warned us of this.

    Of course, the clients of the ratings agencies are rich banksters and brokesters who don’t want to pay anywhere near their fair share in taxes.

  3. Brick

    Without details of what they actually reviewed you have no idea what Moodys are specifically alluding to. The documents reviewed could just be standard process documents which may not have been followed. I suspect Moodys will have done some checks, but I would not rule out that some fudgery happened to pass the tests. I dont think Moodys will leave any evidence that they had a political motive, but the language of what they did say suggests that they are saying something subtly different to the assumed implications. In essence they may have had a motivation to present their findings in a way which could be misinterpreted. What they might be saying is countrywide have a processes in place and there is evidence that they have followed the process over the very recent past.

  4. F. Beard

    False ratings, false accounting standards, aren’t they all just excuses to justify counterfeiting?

    Why on earth would any business willing use phony accounting standards? It doesn’t make any sense EXCEPT in banking apparently.

    As for false investment ratings, where is the free market? Shouldn’t Moody’s reputation be irrevocably ruined? Why haven’t more competent competitors taken over from them?

    We call this free market capitalism? It is more of a joke than that.

    1. avgJohn

      Risk management. The investment banks and others can use the rating agency financial product endorsements to skirt stringent SEC reporting requirements and due diligence, allowing for escape of culpability for the fraud they perpetuate on the American public (in the unlikely event they would be prosecuted). All for a relatively cheap price.

      But you know that, as I have read your comments regarding the rating agencies from past articles. But the beat goes on.

  5. Norman

    I think that what we are seeing today in the financial fiasco that’s taken place, is analogous to a pack of Hyena’s circling the kill. All the player see that no one has been punished, that instead, they are getting off Scott free, even picking up where they left off, just as with the kill, when a bigger predator comes along and wants his bite, they back off, only to return when the bigger predator has left.

  6. april charney

    All three raters issued asset backed rating criteria for rmbs wherein they agreed to take a pledge of a loan and a true sale opinion in lieu of due diligence under the psa or the mlpa. If you can’t find, let me know.

  7. kravitz

    Even a passive observer understands the ratings agencies marked up the value of toxic loans, causing the 2007 mess.

    So why would anyone think Moody’s isn’t still in CYA mode?

    The only loyal clients raters would appear to have are banks, who need say-anythings like Moody’s to bless their fraud.

    While certainly not a lawya, bankin’skola or whutzas, I certainly have seen enough dogs to know what they leave behind.

  8. Doug Terpstra

    Poor “bedraggled Obama” is laughing all the way to the bank, while the untouchable Moody’s provides conflicted, counterfeit cover.

  9. Eli

    This is the problem with this website: jumping to conspiracy theories at the first opportunity. So here is a conspiracy theory: Dec 7 was Steven Hess’s own opinion, expressed in an interview (a quick look at the Moody’s website fails to produce any evidence of a report on that date), subsequently it was taken to Moody’s credit committee for consideration by a wider group, Hess got outvoted, on December 12 Moody’s published an article on the matter, expressing the wider committee’s views, Steven Hess being the author since he is the lead analyst on the US. This is how credit committees work.

    On the other hand, we are invited to believe this is some sort of anti-Obama conspiracy, evidence being some other issue entirely unrelated to the matter at hand. Please.

    1. bobh

      And you are basing a generalization (that NC is characterized by “jumping to conspiracy theories at the first opportunity”} on an unlikely interpretation of the facts at hand. You would have us believe that Hess, credited in the interview as the senior credit analyst at Moody’s, was speaking only for himself when he said “we think” that the TBFTR won’t affect future U.S. credit ratings, and that he later changed his opinion 180 degrees because he was outvoted by his peers. Apparently he is both a fool and a loose cannon at Moody’s. The anti-Obama conspiracy conjecture was labelled as a “cynic’s view” to explain the odd reversal. If you really believe that Hess and Moody’s are trustworthy and ethical credit analysts, and that their ratings and analyses aren’t corrupted by the needs of their clients, I have some Lehman bonds I would like to sell you.

  10. ichabod mudd

    Moddy’s has a secret rating system.!
    hush, DADT
    why anyone would trust them, with out a transparent review
    of each CDO is beyond belief? Oh look Aaa ! wow !
    They did in fact rate many sub-primes falsely high.
    They got millions $ to do it. (for just a rating? just why? )
    so with out transparency how can we believe them ever again?
    We wont ! Dont Please!

    The best book, I have 10 on topic .
    The Big Short by M.Lewis. start on pg 99

    they failed to see CDO the creators.
    Playing games with FICO scores (barbell trick and thin file)
    Moodys was blind to Incomes. No doc’s , Interest only, etc..
    People like Goldman played Moody’s like child playing monopoly. (then moodys says , gee,” people believe or scores.” oh, my, they are only guesses!)
    Is BULL you took millions for a guess, that is a lie !

    I blame them both the Fox and the child.!
    Hang Goldman and fully regulate Moody’s, and S&P.
    SEC needs to review and regulate those FUNNY models.!!!

    parting shot.
    Warren, is not dumb. (holdings of moody’s)
    Berkshire held 48 million shares in March and reduced that stake to 31.8 million as of last week.

  11. ichabod mudd

    conspiracy to comment fraud. both crimes.

    Like MADOFF , he didn’t act alone.
    that is called a conspiracy.

    Tastes very greatly

    till someone lies to you on purpose and profits from the purposeful lies. what an odd comment that.

    I’m all for the skin in the game rule.
    the carnival trading tactics will kill your business.
    or worst

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