Skip

Eat the meat you are Fed: It's good, we guarantee it!
June 19, 2013 11:10 AM   Subscribe

The last mystery of the financial crisis. It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it. by Matt Taibbi in Rolling Stone.
posted by lalochezia (34 comments total) 33 users marked this as a favorite

 
AAA!
posted by fairmettle at 11:14 AM on June 19, 2013 [4 favorites]


Well there is still the "mystery" as to why well-informed banks relied on these ratings agencies when they knew the ratings were bogus.

I mean for the individual investor, you rely on bond ratings because what else are you going to do? A large bank making billion dollar investments into such bonds should do its own analysis. It seems absolutely incredible that Goldman Sachs takes Standard and Poor's ratings at face value and never did any of their own analysis. But it's a nice story and a way to deflect responsibility.
posted by three blind mice at 11:26 AM on June 19, 2013 [3 favorites]


An homage and extension to fairmettle's, above:

AAA WOULD CRASH AGAIN!
posted by Mister_A at 11:30 AM on June 19, 2013 [4 favorites]


I mean for the individual investor, you rely on bond ratings because what else are you going to do? A large bank making billion dollar investments into such bonds should do its own analysis. It seems absolutely incredible that Goldman Sachs takes Standard and Poor's ratings at face value and never did any of their own analysis. But it's a nice story and a way to deflect responsibility.

Regulatory capital requirements.
posted by grobstein at 11:31 AM on June 19, 2013 [1 favorite]


When you're too big to fail, why worry about risk analysis at all? The risk of failure is always zero, so do whatever gets you the biggest potential profit.
posted by Holy Zarquon's Singing Fish at 11:32 AM on June 19, 2013 [13 favorites]


The combination of greed and cowardice of the Moody's executives is not new or startling , but I'm still kind of surprised how willing people are to incriminate or implicate themselves over company email.
posted by planetesimal at 11:32 AM on June 19, 2013 [1 favorite]


Well there is still the "mystery" as to why well-informed banks relied on these ratings agencies when they knew the ratings were bogus.

Because they took all these shitty, bogus-rated securities and sold 'em as fast as they could to whoever would buy 'em:
bankers are pushing boundaries, asking the raters to help them play the highly cynical hot-potato game, in which bad loans are originated en masse and then instantly passed off to suckers who will take on all the risk. "Bankers say why not originate bad loans, there is no penalty," the executive muses.
posted by xbonesgt at 11:35 AM on June 19, 2013 [2 favorites]


Its to a certain extent a self fulfilling prophecy. A bond will behave like a AAA in terms of yield if its rated a triple AAA rated until it has problems and defaults. Also pension funds are required to only invest in bonds of a certain quality.
posted by Damienmce at 11:51 AM on June 19, 2013 [1 favorite]


The real value of the ratings agencies was revealed when S&P downgraded the credit rating of the United States and the yield on T-Bills shot up overnight, as savvy, well-informed investors fled.
posted by the man of twists and turns at 11:58 AM on June 19, 2013 [2 favorites]


Well there is still the "mystery" as to why well-informed banks relied on these ratings agencies when they knew the ratings were bogus.

The game ends when you stop playing.
posted by Pope Guilty at 11:59 AM on June 19, 2013 [1 favorite]




Probably the best question to ask is cui bono?
It was so profitable last time, let's do it again! The regulatory capture and foot-dragging will be sure to help again.
The ratings agencies are in some pretty shitty company in their long-term predictive ability.
Don't forget, the big 3 are part of a Machine, but that shouldn't stop us.
posted by the man of twists and turns at 12:20 PM on June 19, 2013 [1 favorite]


Well there is still the "mystery" as to why well-informed banks relied on these ratings agencies when they knew the ratings were bogus.

I mean for the individual investor, you rely on bond ratings because what else are you going to do? A large bank making billion dollar investments into such bonds should do its own analysis. It seems absolutely incredible that Goldman Sachs takes Standard and Poor's ratings at face value and never did any of their own analysis. But it's a nice story and a way to deflect responsibility.


1) Regulatory capital requirements
2) They didn't believe them. They sold them to Australian municipalities, German Landesbanks and other investors who are more sophisticated than an individual investor but much less so than investment bankers in terms of the tools and information available to them.
posted by atrazine at 12:28 PM on June 19, 2013 [2 favorites]


While I understand the need to sell magazines (or increase page views), it seems a little reductive It's an interesting article with some pretty damning stuff (as if we didn't already know the rating agencies are a bunch of thugs), but Matt Taibbi can pretty reliably pull out a bunch of anything from the masses who emails and other "damning documents" to create the "analysis" he regularly regurgitates into Rolling Stone. For example.
posted by KokuRyu at 1:14 PM on June 19, 2013 [1 favorite]


but Matt Taibbi can pretty reliably pull out a bunch of anything from the masses who emails and other "damning documents" to create the "analysis" he regularly regurgitates into Rolling Stone

Do you have a specific criticism of the article or the points he made?

Many people don't know that the ratings agencies are 'thugs' and we still rely on them to this day to vouch for our nominally 'trustworthy' financial system.
posted by lalochezia at 1:51 PM on June 19, 2013 [6 favorites]


Rating this junk AAA was clearly criminal even prior to these disclosures and it amazes me how the rating agencies escaped without consequence.
posted by caddis at 2:16 PM on June 19, 2013 [3 favorites]


We need rating agencies for the rating agencies.
posted by ryoshu at 2:33 PM on June 19, 2013 [3 favorites]


It's junk all the way down.
posted by planetesimal at 2:34 PM on June 19, 2013 [2 favorites]


What's always amused me is how finely the CRAs slice ratings, as if there were a science to it, as if they were measuring nuances and niceties invisible to naked eye. What, forsooth, is the difference between a bond that's AA2/P-1 and one that's A3/P-2 (Moodys)? Or BBB+/A-2 vs. BBB-/A-3 (S&P)?
posted by chavenet at 2:45 PM on June 19, 2013 [2 favorites]


I mean for the individual investor, you rely on bond ratings because what else are you going to do? A large bank making billion dollar investments into such bonds should do its own analysis. It seems absolutely incredible that Goldman Sachs takes Standard and Poor's ratings at face value and never did any of their own analysis. But it's a nice story and a way to deflect responsibility.
They didn't. They knew they were bogus, they worked with hedge funds to create derivatives that let the hedge funds short them - then they sold those intentionally designed to fail derivatives to their clients. They made a fortune.

Just to be clear there were other banks that got fucked over. Some of them were just holding them, planning to resell them to clients but when the bottom dropped out they got stuck with the bag. But as far as I know Goldman Sachs specifically saw the collapse coming and profited off of it.

In fact, remember AIG? when they went bankrupt and got bailed out - one of their main debtor was Goldman Sachs - Their only mistake was expecting AIG to be able to make good on it's bets.

But, of course once the government bailed AIG out, Goldman got to keep all the profits they made betting against the housing market. In fact, the government installed a new CEO at AIG - who just happened to have been a Goldman Sachs employee...
posted by delmoi at 2:49 PM on June 19, 2013 [3 favorites]


but Matt Taibbi can pretty reliably pull out a bunch of anything from the masses who emails and other "damning documents" to create the "analysis" he regularly regurgitates into Rolling Stone. For example.
Wow, a widely discredited hit job from 2009 that only lists one relatively minor actual factual error - mixing up two people who are both named James Rubin, only one of whom was Bob Rubin's son (the other was a diplomat)

Taibbi responded at the time.
And, to be perfectly honest, some of this is my own fault, since there is indeed a factual error in the piece — a minor biographical detail that identifies Bob Rubin’s son Jamie as a former Clinton diplomat. There is in fact a James Rubin who was a diplomat in the Clinton White House, but that James Rubin is not the James Rubin I’m referring to in the piece.

So I fucked up with that line — “a former Clinton diplomat” — and for that I certainly am sorry, among other things because Rolling Stone’s fact-checkers are the most rigorous in the business (much more so than any other newspaper or magazine I’ve worked for) and I think actually this was my error and not theirs, a late-stage mixup near press time.

Now, that said, it was indeed Bob Rubin’s son Jamie who worked with Michael Froman in the Obama transition team. Had it not been Bob Rubin’s son, that would certainly have qualified as a serious error, because then we’d be making an argument based upon a factual error.

But the basic argument of the article was that an enormous number of people with ties to Bob Rubin and/or other Wall Street insiders had assumed positions of responsibility in the Obama transition and White House. And Jamie Rubin is Bob Rubin’s son, and he was a headhunter for Obama’s economic hires from the first days of the transition. So the meaning here is really not significantly different. The fact that this heads the Prospect’s list of complaints says a lot about the substance of this criticism. ...
Nice job googling "Matt Taibbi errors" and linking to the first result without reading it or verifying it was accurate, though.
posted by delmoi at 3:07 PM on June 19, 2013 [9 favorites]


Nice job googling "Matt Taibbi errors" and linking to the first result without reading it or verifying it was accurate, though.

Wall Street pays for quantity, not quality.
posted by ryoshu at 3:15 PM on June 19, 2013 [5 favorites]


Nice job googling "Matt Taibbi errors" and linking to the first result without reading it or verifying it was accurate, though.


Caa1
posted by Teakettle at 3:22 PM on June 19, 2013 [2 favorites]


haven't looked at his substantive claims yet, but his framing is annoying. there was a ton of ink spilled over the role of the ratings orgs, and his "why hasn't anyone looked at the SROs" schtick just comes off as ignorant.
posted by jpe at 3:42 PM on June 19, 2013 [1 favorite]


I clicked around my cable TV today for the first time in weeks (dealyed TV replacement) and flipping through the "News" channels, saw on CNN (not FN) a big serious 3D graphic declaring "585 DAYS SINCE AAA" and the newsmodel reading a script asking "What is the US doing to get it back?" Well, I'm sure asskissing the ratings services like that won't hurt TimeWarner's bond rating.
posted by oneswellfoop at 6:01 PM on June 19, 2013


Nice job googling "Matt Taibbi errors" and linking to the first result without reading it or verifying it was accurate, though.

Thanks delmoi. Pretty telling that you rely on Matt Taibbi to edumacate yourself about "how the world works."

I didn't see a goddamn citation in the RS piece. Hype sells though.
posted by KokuRyu at 9:20 PM on June 19, 2013


KokoRyu, jpe: got any substantive criticisms?

Care to refute any of the factual data or arguments revealed?

Or to explain to us why this story, describing one of the root causes of the greatest financial disaster of our age, is "no big deal"?
posted by lupus_yonderboy at 9:31 PM on June 19, 2013 [5 favorites]


there was a ton of ink spilled over the role of the ratings orgs

But how much criminal prosecution?
posted by Obscure Reference at 4:54 AM on June 20, 2013


Say what you want about Bitcoin, but at least most scams related to it are pretty obvious and transparent.
posted by ymgve at 9:31 AM on June 20, 2013


Say what you want about Bitcoin, but at least most scams related to it are pretty obvious and transparent

You mean except for the part where we have no clue who created it?
posted by JoeZydeco at 11:58 AM on June 20, 2013


Bitcoin itself is an obvious, transparent scam, soooooooo
posted by Pope Guilty at 3:22 PM on June 20, 2013


I didn't see a goddamn citation in the RS piece. Hype sells though.
Well, there was one, as well a link to the independent fact check in a reuters blog which I also linked too.
Thanks delmoi. Pretty telling that you rely on Matt Taibbi to edumacate yourself about "how the world works."
You have a citation for that assertion?

Or are you just assuming that anyone who defends Taibbi is doing so because they learn "how the world works" by reading is articles? Is it also true of Felix Salmon, who's counter-fact-check who I also linked to?

Anyway, you made the assertion that Taibbi often makes factual errors. You listed one fact-check article which listed one factual error that he apologized for, accidentally saying Bob Rubin's son had been a diplomat because he had the same name as someone who was. That's it. If he's always making errors, it should be easy to find some relevant examples.

Don't blame me for the fact you made an assertion you can't actually prove.
posted by delmoi at 8:20 PM on June 20, 2013 [1 favorite]






« Older The politics of empathy   |   Scotland's Young Fathers:... Newer »


This thread has been archived and is closed to new comments



Post