"products that later turned out to be extremely risky, and in some case, worthless. "

NY Times posted on the congressional hearings on the ratings agencies. How timely:

"Members of Congress leveled sharp criticism at the major credit-rating agencies Wednesday morning, as the House Committee on Oversight and Government Reform held a hearing on these firms’ role in the current economic crisis.

Several lawmakers vented their frustration over what they considered to be egregious lapses at the agencies, Fitch, Standard & Poor’s and Moody’s.

Mark E. Souder, a Republican from Indiana, described their conduct as “gross incompetence.” Another lawmaker read from a series of instant messages, sent by employees of S&P, in which one analyst said they would rate a deal even if it were “structured by cows.”

In many cases, these ratings agencies assigned super-safe, triple-A ratings to structured products that later turned out to be extremely risky, and in some case, worthless.

These investment products, such as mortgage-backed securities, were created by financial institutions ostensibly to mitigate risk by pooling loans and selling parts of them off to investors. But many of the loans that were packaged in these securities were made to people with poor credit histories, little equity in their homes or overstated income."

Here's my comment:

“In the final few months of 2007, Moody’s downgraded more bonds than it had over the previous 19 years combined”

Interesting post on the FT by Sam Jones on Moody’s and the rating system:

“Then, on August 16 last year, after an internal revision of its ratings practices, Moody’s made an announcement that heralded the beginning of the credit crunch.”

And:

“The action was the first in a series of surprises for the credit markets. In each of the succeeding weeks, it seemed, Moody’s and the other rating agencies had more bonds to downgrade. And each set of downgrades was a convulsive shock. In the final few months of 2007, Moody’s downgraded more bonds than it had over the previous 19 years combined. Panic gripped trading floors. Titanic structured vehicles, created by banks to warehouse their “riskless” mortgage bonds, became untouchable for short-term investors. As a result, two big German banks revealed that they were within a whisker of collapse, and virtually overnight all the world’s banks stopped lending to one another.”

Please read it.

Let’s see, that was…about a year ago. Nice work

— Posted by Don the libertarian Democrat