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Week of 12.26.08
Credit and CredibilityWhat role did the credit rating agencies play in the current economic crisis? This week, a former managing director at Standard & Poor's speaks out on U.S. television for the first time about how he was pressured to compromise standards in a push for profits. Frank Raiter reveals what was really going on behind closed doors at the credit rating agencies the public relies on to evaluate the safety of their investments."During this period, profit was primary; analytics were secondary," Raiter tells NOW Senior Correspondent Maria Hinojosa. Who was watching the watchers? Surprising new revelations about the economic debacle, this week on NOW. » Read Standard & Poor's response to the investigation [pdf] Selected E-Mails and Documents from our Investigation   Video: Stiglitz: "A Gun at Our Heads"Nobel Prize-winning economist Joseph Stiglitz talks about misplaced priorities in handling the economic meltdown, and what we should do next. October 2007—by Raymond W. McDaniel, Chairman and CEO, Moody's Corporation. McDaniel describes a topic he calls "Erosion by Persuasion" in which "Analysts and MDs [managing directors] are continually "pitched" by bankers, issuers, investors—all with reasonable arguments—whose views can color credit judgment, sometimes ... "we 'drink the kool-aid.'" A Standard & Poor's internal email (pdf) from December 2006, in which an employee states: "rating agencies continue to create [an] even bigger monster - the CDO [collateralized debt obligation] market. Let's hope we are all wealthy and retired by the time this house of cards falters." In an Instant Message exchange (pdf), an S&P employee in the structured finance division writes: "It could be structured by cows and we would rate it." Further emails, documents and testimony are available from The Committee on Oversight and Government Reform hearing "Credit Rating Agencies and the Financial Crisis," as is video of the hearing. White Paper on Rating Competition and Structured Finance by Jerome Fons, a former Moody's Exec who testified at the "Credit Rating Agencies and the Financial Crisis" hearing. Fons argues that the credit rating agencies have a conflict of interest inherent in their business model, and considers alternatives. Credit Rating Agencies in the News Associated Press: SEC adopts new rules for credit-rating agencies Financial Times: When junk was gold New York Times: Triple-A Failure New York Times: Watchdogs: Tamed or Caught Napping? NPR: The Giant Pool of Money Reuters: Are credit raters off the mark again? Spreads say yes Wall Street Journal: How Rating Firms' Calls Fueled Subprime Mess Wall Street Journal: SEC Tightens Rules for Ratings Firms This show was originally broadcast on November 21, 2008 |
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Credit and CredibilityWhat's Next for Capitalism? Stiglitz: "A Gun at Our Heads"  Feedback Forum PROGRAM RESOURCES
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