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SEC Refuses To Sue Moody's Over Computer "Glitch" Which Inflated Ratings By 1.5-3.5 Notches On Thousands Of CDOs
Another day, another SEC farce. Today, Schapiro's captured henchmen sent a notice to credit rating agencies about internal conduct and
methods the firms use to determine the riskiness of financial products. As the alternative was to pursue a fraud enforcement action, in this particular case against Mark Zandi's Moody's, one can see why the SEC opted out for the action that would not implicitly open it up as well to like legal treatment by millions of investors, who had kinda, sorta hoped that the SEC would not allow this kind of fraud in the first place. As Housing Wire reports, "the SEC announcement stems from an inquiry by its enforcement division into whether Moody's Investors Service violated registration provisions or anti-fraud provisions of federal securities laws." Additionally, "the commission notes that Dodd-Frank gives federal district courts jurisdiction over SEC enforcement actions that allege violations of the anti-fraud provisions of the securities laws." In other words, while the SEC is a toothless, gutless, corrupt POS, others may take offense to this lack of responsible action and sue Moody's directly. And what is the reason for the SEC investigation? Why, a computer "glitch", which "inadvertently" raised the ratings of various CDOs by up to 3.5 notches! Housing Wire notes: "The SEC inquiry stems from allegations that a Moody's computer coding
error improved, "by 1.5 to 3.5 notches," the credit ratings for certain
debt obligation notes." Yet having been caught with its pants down was not enough for Moody's to actually fix the "glitch" - "shortly thereafter during a
meeting in Europe, a Moody's rating committee voted against taking
responsive rating action, in part because of concerns that doing so
would negatively impact Moody's business reputation." And people are surprised that wholesale market manipulation occurs on a day to day basis, with the ongoing blessing of the SEC...
From Housing Wire:
The report also notes the Dodd-Frank Act amended the securities laws
to require nationally recognized statistical rating organizations
(NRSROs) to "establish, maintain, enforce, and document an effective
internal control structure governing the implementation of and adherence
to policies, procedures, and methodologies for determining credit
ratings," according to a release from the SEC.
"Investors rely upon statements that NRSROs make in their
applications and reports submitted to the commission, particularly those
that describe how the NRSRO determines credit ratings," said Robert
Khuzami, director of the SEC's division of enforcement. "It is crucial
that NRSROs take steps to assure themselves of the accuracy of those
statements and that they have in place sufficient internal controls over
the procedures they use to determine credit ratings."
All of this of course is irrelevant: as long as the institutional investors continue to be uberlazy, and refuse to do their own work, when instead they can offload it to such mutants as Moody's, why not? And if at the end of the day, they can blame the rating agency for (complicit) fraud, corruption and incompetence, so much the better: after all it will merely deflect attention from their own sorry, and overpaid behinds.
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Tyler,
You are in rare form today. Your writing is agressive. I like it.
I concur, Tyler you're getting meaner, nastier, angrier-er .... it's as if someone rebuilt you .... we have the techonology .... the $6mill ZH (non-inflation adjusted). I LIKE IT TOO.
:)
It's remindes me of the old days ....
..."To celebrate their new credit rating, insane dictator Robert Mugabe releases new 50 billion note, which is roughly equal to one US dollar. In what should be a sobering case study to Hank Paulson and his soon-to-be replacement Tim Geithner, (who earns bonus points in our book for "forgetting" to pay Social Security and Medicare taxes in recent years and hiring illegal immigrants, which according to Ira Sorking would likely be classified as an "Innocent Mistake") Zimbabwe's most recent reading on inflation, at a time when people's calculators could calculate numbers that high, was 11,200,000%. Let's just hope the U.S. doesn't run out of ink and paper before we need to add a few hundred zeros to each dollar bill. If one is so inclined, one might make some money by going long the company that makes the magnetic ink used by the Willy Wonka Dollar Printing Factory... Blue Horseshoe"...
Posted by Tyler Durden Wednesday, January 14, 2009Hahahahaahhaha Tyler's best stuff lately involves HFTs / Algos with whom I suspect he's got a tinsy-winsy tiny wittle pwobwem :) To wit:
"being brain donor recipients, and broadly volunteering for Phase III drug trials focusing on the treatment of galactic stupidity."
http://www.zerohedge.com/article/sec-force-market-making-band-around-nbbo-eliminate-stub-quotes-flawed-response-flash-crash
hahahhahaha infinity
Keep it up Tyler
pure Zero Hedge gold...
The Amazing Story of the Hui Xing Gold Mine Ponzi Scheme in Inner Mongolia
http://israelfinancialexpert.blogspot.com/2010/08/chinas-shark-loan-ponzi-finance-amazing.html
Looks like we got us another Cetin (Iamned) troll here.
Is THIS not what was expected....?
Fascism...at its finest....
SEC
S ecure
Employment
C ompensation
$ Trillions lost....no accountability....
SEC =
S crew
E very
C itizen
Not
Enough
Lamposts
I just love how protecting the institution that is Moody's is more important than their ability to create value through accurate/coherent ratings.
Of course, irrational protectionism is the flaw within all institutions, where they sacrifice their reputation in order to protect... their reputation.
And they would've gotten away with it too, if it weren't for you meddling kids!
From the archives :
Thursday, April 22, 2010'Hold everybody accountable? Ridiculous!'
- W. Edwards Deming
'I repeat... that all power is a trust; that we are accountable for its exercise; that from the people and for the people all springs, and all must exist.'
- Benjamin Disraeli
'No we're not the same
Cause we don't know the game
What we need is awareness, we can't get careless
You say what is this?
My beloved lets get down to business
Fight the Power.'
-Public Enemy
'The Financial Crisis Inquiry Commission, the body set up by Congress to examine the cause of the system-wide credit crunch, said yesterday that it would use its legal powers for the first time to force Moody's, the credit rating agency, to produce documents.'
-FT 04/22/2010
'If they can get you asking the wrong questions, they don't have to worry about the answers.'
- Thomas Pynchon
'The two enemies of the people are criminals and government, so let us tie the second down with the chains of the Constitution so the second will not become the legalized version of the first.'
-Thomas Jefferson
The rating agencies are the enemies of the people.
Once upon a time I sat down in front of the agencies. Had an exclusive to place a'third'a billion face of a rather unique asset class. In order to get the buy side to bite, of course, we needed a rating.
It is not in any way embellishment to state that the work done by the agencies on this deal was so amateurish, so ephemeral, that a high school student with the toolkit of 'opposable thumbs and frontal lobes' could have coaxed Senor Google into producing a superior report.
Ultimately the squints created a white paper and slicks in my biz waved it around industry conferences as if it were gospel.
Of course the gospel was built on the bell curve and the curve was based on assumptions.
While seers like Taleb and Mandelbrot have shown that it is the flight of an arrow and that reality is the tail risk, the coin flippers have heretofore admitted no more than hey... it's a modified coin flip and our assumptions, which we provided to you in the King's English, why they're free speech babe!
But verily, Money is not Speech, Corporations are not People,and Fee Speech is not Free Speech.
Shame that there isn't a smoking gun.
Waitaminnit ...
by Jesse Eisinger Oct 15 2008
Portfolio Magazine
In December 1997, J.p. Morgan closed on its first big credit-derivatives deal, the Broad Indexed Secured Trust Offering, or Bistro for short. Insurance companies and banks, the initial customers, were enthusiastic, snapping it up in just two weeks. The deal was enormous for the time, off-loading more than $9.7 billion of J.P. Morgan’s exposure. Morgan had succeeded in reducing its balance-sheet risk and was able to free up capital to buy its stock back.
J.P. Morgan would go on to launch a credit- derivatives assembly line, becoming the Henry Ford of the new financial market.
Bistro “was the most sublime piece of financial engineering that was ever developed. It was breathtaking in terms of beauty and elegance,” says Satyajit Das, a risk consultant and the author of Traders, Guns, and Money, a financial history. But “in many ways,” Das adds, “J.P. Morgan created Frankenstein’s monster.”
For J.P. Morgan, Bistro worked wonderfully. But even in that first deal, the weaknesses in structured finance and credit derivatives that would come to the fore in the 2007 credit-market crash were already there.
Despite its blue-chip assets, Bistro didn’t perform pristinely. The initial slice, the equity layer that Morgan retained as a cushion against trouble, was so thin that it couldn’t weather even one default from one of the bigger companies in the bundle. That ultimately happened, wiping the slice out entirely. The investors who were one notch up, in what’s called the mezzanine layer, lost money as well. Even the buyers of the top-rated tranches, which were thought to be rock solid, had to endure bumpy periods before they got their money back.
During that first major deal, the credit-rating agencies, which were supposed to be impartial, were already deeply enmeshed in the give-and-take of the process.
A former Morgan banker who helped create Bistro recalls that Standard & Poor’s was giving the bank a tough time. The rating firm would run the deal through its models, and “each time, it came up with disastrous results. We did some tinkering and all of a sudden, it could rate the deal,” the banker says.
AM Here: Tinkering!
What an innocuous word for fraud.
Move along nothing to see here.
Frank Partnoy described the same process years ago in "Fiasco". It's an iterative process. Just keep slathering mustard on that shit sandwich and keep sending it back over to Moody's until they can wink and pretend they can't taste it.
'The derivatives group received its marching orders from the firm's leader, John Mack. Following Mack's lead, my ingenious bosses became feral multimillionaires: half geek, half wolf. When they weren't performing complex computer calculations, they were screaming about how they were going to "rip someone's face off” or "blow someone up.”'
-Frank Partnoy
Ripping the taxpayers' face off continues...
jpmorgan shuts down london commodity dealing desks!
http://www.businessinsider.com/bloomberg-jpmorgan-is-shutting-down-all-prop-trading-desks-2010-8?utm_source=Triggermail&utm_medium=email&utm_campaign=Clusterstock_COTD_083110
LOL, this just in from Skynet..."ALL YOUR RATINGS ARE BELONG TO ME, FLESHBAGS!"
Consistently fraudulent.
+1, What's with all the complaining about an uncertain regulatory environment?
OT: FDIC quarterly banking profile is out [pdf]. The DIF is still negative, at -0.28%. The DIF ratio doesn't take into account the increased coverage to $250,000 either. There is a nice note on page 16 of the pdf about it. Starting in Q3 the DIF will be calculated with the new coverage limits. Awesomesauce.
There's your problem
http://abcnews.go.com/GMA/sec-pornography-employees-spent-hours-surfing-porn-sites/story?id=10452544
This is the real problem.
http://wallstreet.blogs.fortune.cnn.com/2010/08/31/sec-drops-moodys-frau...
It's not a bug, it's a feature.
Same "feature" is built into the credit score algorithms, it just has a (minus) in front of it.
what a bunch of whiners. if you don't like the advice moody's gives, then don't take it. the sec protected bernie for 10 years so what do you all expect? a bunch of hedge funds are short MCO and it hasn't done the crash and burn as expected, so guess what, it's time to suck it up. moody's is a viable company, like it or not.
"internal conduct and methods the firms use to determine the riskiness of financial products"
Accept gifts, vacations and other gratuities from the issuer in exchange for a favorable rating.
Love the writing on ZH. I hope more people could read this stuff and educate themselves on what is really going on and how we the people are being taken for the ride of our freaking lives.
Careful what you ask for.
Coup d'Etat: Standard & Poor's is now giving Orders to Congress...and the American People
August 30, 2010 03:05 PM
There's been a lot of talk recently about the enormous power that's been given to the Deficit Commission, which is co-chaired by Alan "Social Security recipients are milking it" Simpson and dominated by people who have advocated cuts to Social Security and Medicare. But here's an aspect of the story that's gone unremarked: Standard & Poor's, the credit rating agency whose reputation should rightfully have been shattered by the economic crisis, is now dictating policy to the United States government. S&P just put our elected officials on notice: Submit to the proclamations of the Deficit Commission or we'll downgrade our rating of government debt.
That's blackmail, plain and simple. This threat comes from a privately-owned company whose rating process is riddled with conflicts, and which has gotten virtually every critical assessment of recent years spectacularly wrong. Enron? Lehman? Subprime mortgages? They were zero for three. Yet rather than reining back their penchant for reckless proclamations, the chairman of S&P's "sovereign rating committee" said that our elected officials' response to the Deficit Commission would be crucial to its analysis of US debt. John Chambers said last week: "It is very important for the credit standing of the United States that the Congress considers very carefully what the fiscal commission proposes." Just in case his intent wasn't clear enough, he added: "It is very important for Congress to take the required steps."
http://www.huffingtonpost.com/rj-eskow/coup-detat-standard-poors_b_69947...
It would not be the end of the world if our credit rating was downgraded from AAA.
If the rating agencies were really doing their job this would have been done a few years ago.
Let mark assets to what they are really worth and find a true bottom. Enough of the extend and pretend.
And there are other countries like UK that suffered the same fate. The pound crashed ........for 2 hours and then things went back to normal. The pound infact regained all its loses against the currency of a currently AAA rated nation!
Chinese ratings agency, Dung Poo or whatever the name is, already did it.
SEC says it lacked authority to charge Moody's(AP) – 1 hour ago
WASHINGTON — "The Securities and Exchange Commission has declined to seek fraud charges against Moody's Investors Services over its ratings of risky investments that led to the financial crisis.
But the SEC said it decided against seeking civil charges only because it determined it lacked authority to charge a foreign affiliate of Moody's."
http://www.google.com/hostednews/ap/article/ALeqM5iohHnzQMuBC4X1hNjCs2FX...
-One good glitch deserves another.
I ranted about these thieves long ago. As far as blame for the shit we are in, they are very high on the list. Like Arthur Andersen after the Enron debacle, they should simply be closed. But wait, a) it is owned by Warren Buffet who shakes with the Prez and b) no one wants to go there as far as a rating downgrade. So, again, like many situations we are finding ourselves in, we are checkmated here. Moody's has been propping up the Straw Man for quite some time. In return, they remained unregulated and managed to deteriorate to a drug dealer status - they were Wall Street's slut fix. But if we bust them here, the Straw Man will go down too, to a fast BBB.
So, its simply the ghetto classic kickback/scam/drug scheme gone way too long. To know that many people in that organization knew they were propagating a scam is enough for me to make a fucking citizen's arrest. They are the worst this country has to offer. In the meantime, a royal fuck you to all the Moody's assholes that are reading this ..
Hall 9000, timely post. They SEC should be actually placed under the auspices of a special board of well respected citizens. The incompetence level and the Bullshit meter are way off the charts. I know there are people within that organization that are probably screaming at what they see but their are a lot of dingbats there too and a buffoon running it.
Madhouse wrote:
"They SEC should be actually placed under the auspices of a special board of well respected citizens."
I would prefer the phrase, "placed on a waterboard" under the auspices of special well respected citizens, maybe FOX/CNN could broadcast it. :-)
Weren't all this crap in the interests of Transparency gonna be broadcast on C-SPAN?
This is the inverse of the 'how many guys a female slept with' calculation..
---- Woman's Sexual Partner Calculation ----
allegedSexualPartners = 10;
realTotal = sexualPartners * 4;
---- Moody's Rating Calculation ----
allegedMoodysRating = 24;
realRating = 24/4;
shhhhhh the sheeple are watching the roman games....I mean the US Open. Until the cable shuts off and MC Ds burgers aren't available....nothing will happen.
Hmm.What I take from this is that not only does the Emperor have no clothes, he also has no teeth and is covered with lesions from his horrific Meth addiction.
Nice.
These "glitches" are becoming all too common. Heads need to roll, but of course they won't as the Cronies are still in power.
Liars, glitchez!
Don't miss the big picture. These so called anomalies are the set up for the Global Monetary Authority. The Bank of International Settlements through the Financial Stability Board has established 12 key International Standards & Codes (http://www.londonsummit.gov.uk/en/). Coming soon to a government near you, "total control by central banks". My prediction, this will be slipped in during the lame session this December. Read Crisis By Design - John Truman Wolfe.
Got to love a good conspiracy story: http://www.whatdoesitmean.com/index1402.htm
This is a no-brainer: If they all stick together, you know, a code of dishonor, like drug cartels and gangsters (banksters), they stand the best chance of getting away with the greatest heist in history.
When a single industry is surrounded by candy, and they look at it and study it all day long, and all they have to do is to all work together on it, and do what they do best, they all stand to gain vast amounts of wealth. And when the questions are asked, they merely point the finger and play dumb. When accused of taking, they cry, "no, we're adding liquidity"...you just need to look at them like children and their game is easy to see.
You don't think the heads of the SEC rub shoulders with the big players??? Come-on?!
Glitches bitchez!!! Cause we can no longer make you belive in witchez!!
Of course, these people have an oddly similar predicament.... if they downgrade more before their government gets out (replace "gets out" with "funds" in the case of Moodys here in the U.S.) then they will get thrown in jail...
US is not AAA in new Chinese-made ratings
By Joe McDonald | 2010-7-12 | NEWSPAPER EDITION SHANGHAI DAILY
A CHINESE firm that aims to compete with Western rating agencies declared the United States a worse credit risk than China in its first report on government debt yesterday.
Dagong International Credit Rating Co's verdict was a break with Moody's, Standard & Poors and Fitch, which say US government debt is the world's safest.
Dagong said it rated the US below China and 11 other countries, including Switzerland and Australia, because of high debt and slow growth. It warned that the US is among countries that might face rising borrowing costs and risks of default.
The report comes amid complaints by Beijing that Western rating agencies fail to give China full credit for its economic strength, boosting borrowing costs - a criticism echoed by some foreign analysts. At June's G20 summit in Toronto, President Hu Jintao called for the creation of a more accurate system.
Dagong, founded in 1994 to rate Chinese corporate debt, says it is privately owned and pledges to make its judgments impartially.
Dagong's chairman, Guan Jianzhong, said the current Western-led rating system is to blame for the global crisis and Europe's debt woes. He said it "provides the wrong credit-rating information" and fails to reflect changing conditions.
"Dagong wants to make realistic and fair ratings," he said.
Dagong's report covered 50 governments and gave emerging economies such as Indonesia and Brazil better marks than those given by Western agencies, citing high growth.
Along with the US, some other developed nations such as Britain and France also received lower ratings than those of other agencies.
Dagong rated US government debt AA with a negative outlook, below the firm's top AAA rating. It warned that the US, along with Britain, France and some other countries, might have trouble raising more money if they allow fiscal risks to get out of control.
"The interest rate on debt instruments will run up rapidly and the default risk of these countries will grow even larger," its report said.
Dagong rated China AA-plus with a stable outlook - higher than Moody's A1 and S&P's A-plus - because of rapid growth and relatively low debt.
Ahead of it were seven countries including Switzerland, Australia and Singapore that received the top rating of AAA, the same as those from Western agencies. Canada and the Netherlands also ranked above China.
Dagong said it hopes to "break the monopoly" of Moody's Investors Service, Standard & Poors and Fitch Ratings. Their reputations suffered after they gave high ratings to mortgage-linked investments that soured when the US housing market collapsed in 2007.
BTW, thx for post knukles
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