Ratings Agencies, To Blame For Some Of The Crisis, Could Now Benefit

The Federal Reserve is in the uncomfortable position of rewarding those who helped cause the financial crisis.

The government's latest rescue effort involves issuing more than $7 billion in bonds. Each of these bonds will have to be rated by at least two of the three largest ratings agencies: Moody's Investors Service, Standard & Poor's and Fitch Ratings.

This ratings work will generate fees for the agencies, potentially totaling hundreds of millions of dollars, the Wall Street Journal reports.

These firms dominate the credit-ratings business, and their imprimatur is considered crucial for investors that buy bonds and asset-backed securities. They have been vilified in recent months because their ratings on mortgage securities were widely off base.

Now the government is in the uncomfortable position of rewarding these same firms through a new program that will result in numerous companies issuing securities. If the ratings companies are wrong this time around, the Federal Reserve and the Treasury -- and therefore taxpayers -- will be on the hook for some losses.

According to the Journal, the ratings agencies typically charge as much as $120,000 for every $100 million in bonds they rate. Under the government's latest program to ease the credit crisis, if it is extended to the full $1 trillion, as the government plans, ratings agencies' fees could total from $400 million to as much as $1.2 billion.

To prevent taking on too much risk, the Fed is also requiring that its loans only be used to buy bonds that are rated the least risky, or triple-A. This could give the agencies some incentive to skew the ratings of the bonds higher.

Critics say Moody's, S&P, a unit of McGraw-Hill Cos., and Fimalac SA's Fitch have made few fundamental changes to the way they assess debt. Officials at all three firms say they have taken steps to avoid a repeat of past mistakes in assigning ratings.

They are still paid for their ratings by the companies whose bonds they rate, a potential conflict of interest. And much-anticipated competition for the three companies has failed to materialize so far.

Comments

[abt]

"To Blame For Some of the Crisis"?
No - they were absolutely central and their executives should be prosecuted for securities fraud.
"They are still paid for their ratings by the companies whose bonds they rate, a potential conflict of interest." - a "potential" conflict of interest?
No, it's absolutely blatant. The Ratings Agencies execs and the bought-and-paid-for U.S. Congressmen who enabled this structural change - should all face criminal charges.

[RRG64]

"THE Federal Reserve proposal was unconstitutional from its inception, because the Federal Reserve System was to be a bank of issue. Article 1, Sec. 8, Par. 5 of the Constitution expressly charges Congress with "the power to coin money and regulate the value thereof.". Warburg’s plan would deprive Congress of its sovereignty, and the systems of checks and balances of power set up by Thomas Jefferson in the Constitution would now be destroyed."

The London Connection
http://www.apfn.org/apfn/reserve.htm

[000Jade000]

FORCE THEM to do the GD work for FREE!

[skene]

So just what the Heck are you good for, Bernie boy?

[earnandsave]

WHAT! WHAT! THIS IS THE OUTRAGE! This is absolute madness!

[PhilipTaylor]

JIM CRAMER CNBC Feb 27, 2009 Admitted Short Selling SCHEME!

http://www.youtube.com/watch?v=1qxdJ3FdRZM

EVERYDAY MORE PROOF that Wall Street is infected with:

1. WORST CORRUPTION in our Nation's History
2. WORST CULTURE ever to be manifested in American Business
3. GREED that steals Taxpayer Money for its own pocket change
4. "Insider Trading" used to fleece Americans/WORLD
5. Illegal TRICKS for every imaginable Scheme to ruin Americans

Not "1" Executive has been Fired, Fined, Investigated, or Prosecuted.

They have our Government/America in their FULL CONTROL!

Are we ALLOWING Continued THEFT from our beloved Country!

[Luvial]

When will Obama stop bailing out the crooks and let bankruptcy work it out?

[bubbuh]

How on earth do you think bankrupycy will sort out the crooks?

[PhilipTaylor]

THIS IS MORE PROOF that WALL STREET is infected with:

1. The WORST CORRUPTION in our Nations History
2. The WORST CULTURE ever to be manifested in American History
3. GREED that steals Taxpayer Money for its own pocket change
4. "Insider Trading" used to fleece Americans and the WORLD
5. Illegal TRICKS for every imaginable Scheme to ruin Americans

Not "1" Executive has been Fired, Fined, Investigated, or Prosecuted.

They have our Government and America in their FULL CONTROL!

Are we going to ALLOW this Continued THEFT from our beloved Country?
__________­__________­__________­__________­__________­__________­_

Who is the Federal Reserve accountable to?

TO:

1. Elite Banksters
2. London Banksters
3. Harvesting Americans Wealth - more its primary Goal!

NOT TO:

1. US Government who it charges Interest
2. American People
3. Small Business

[Spesabsquemetu]

This entire SCAM is a broad scale PONZI scheme, referred to by Mr. Cramer, in his confessions to short selling that involved getting investors to buy into bloated stocks that Cramer knew were being distorted to the consumer (if I understand the scheme correctly, which he refers to as being "perfectly legal" - but something he would never admit to on television.)

When a former advisor under Clinton suggested that Washington was a place of organized corruption, it didn't take long for the stench of corruption to lead directly to Wall Street.

[Spesabsquemetu]

These corrupt practices are the epitomy of evil.

The corruption is so out of control, that aptly, they still do not know to what lengths or how long the results of this savagery will continue and to what lengths.

But we'll stack up those homeless vets in our gutters, we'll tell the inner cities ... to hope, and tighten the belts falling from their waists, we'll line up the tents in cities across America, and tell the children in this country to wait 12 more years for health care, a decent school to attend, while we kiss them goodnight promising them that someday they'll live in a city uninfested with violence, drugs, crime, gangs, and crumbling schools. We'll tell the elderly to dig deep into those retirement funds that are worthless, and tell the working class to just keep working until you're 90, to make up for the losses they all incurred when the federal government needed to provide THEIR TAX DOLLARS to all the FOR PROFIT INDUSTRIES that were counting on their unbridled greed to satiate their appetities for gluttony, so that we can leave children hungry, famililes homeless and without any hope, kids unable to afford college, fathers frantic in search for employment in a nation without jobs, mothers working 2 and 3 jobs, while the GOP decries expenditures in the budget, and the democrats claim they are being ambushed by their own.

[Jason G]

Daddy, one day I want to be a wall street exec and then I can order the president to give me money any time I want!

[AN2009]

That's why every frat boy wants to be a banker now...

[vanron100]

Here's the problem...

Paulson (+ Geithner, Bernanke, etc) designed this 'Ponzi' scheme (TARP). We understand everyone wanting us to buy more stock in order to keep the market up...fix the system...then we'll have 'confidence' to invest.

And that FIX is simple and oblivious, but everyone seems not to be addressing it directly...
- it's 'Corruptio­n-Corrupti­on-Corrupt­ion'.
ie. special interest groups, earmarks, lobbyist, elimination of rules and regulations, the financial sector having contributed over $5.2B to political campaigns, same people who got us in this mess are now tying to get us out (humanly impossible...they will, and have instead spent most of the time & money trying to cover-up the industry's underlining behavior).

Corruption is the 'root' problem here...as it is everywhere. Until that gets fixed first...everything else is redundant...we're just pouring $$$ into the abyss! Wall Street has always been Ponzi Street, and the Golden Rule always applies; 'never invest $$$ you can't afford to lose'.

Fix the 'corruption' - then we'll have 'confidence'.
The solution – 'Transpare­ncy-Transp­arency-Tra­nsparency'­.
How? Start now Restructuring (nationalize, fix, resell) all these financial institutions - the FDIC does this every day.

[quiviran]

Wall Street needs to be put under the governance of the Nevada Gaming Commission. At least the players-in­-the-stree­t (us) will know how the game works and the odds against them. You can't say as much for the SEC and Fed.

[Nicholas VII]

Moody's, S & P, and Fitch should all be prosecuted for defrauding the public and penalized heavily, rather than asking them to provide a rating for the new government issued debt; a rating, that obviously is worthless anyway. They are as incompetent as any of the other Wall Street geniuses.

[research]

The Casinos have a great deal for you!

Gamble all you want on borrowed hedge funds.

Keep your winnings.

Insure your losses with AIG Swaps, back by the federal government.

Be sure to stop by our Easy rating companies on you way to the AIG booth.

Get it?

The Stock Market has gone from 10% derivatives to 90% swaps in 6 years, thanks to BushCo GOP.

http://www.huffingtonpost.com/users/profile/research?action=profile Proof and links.

[americadead]

Its time we do away with these monsters

http://www.flickr.com/photos/coyote2012/2154407793/

[bubbuh]

The ratings agencies should be entirely replaced. No one has a worse record of accomplishment than these entities.

[ekoorb]

It would appear that the Emperor has no clothes.

[dididangerlove]

Why isn't legislation to regulate the rating agencies before issuing bonds? The government has been urged to move quickly on bailout and stimulus but not regulation.

Without regulation claims that "they have taken steps to avoid a repeat of past mistakes in assigning ratings", means nothing. I still don't trust them.