More Evidence Against Moody's

Several weeks ago there were these serious allegations from a former Moody's executive, Eric Kolchinsky:

Kolchinsky said Moody's "gave a high rating to a complicated debt security in January 2009 knowing that it was planning to downgrade assets that backed the securities. Within months, the securities were put on review for a downgrade.

"Moody's issued an opinion which was known to be wrong," Mr. Kolchinsky wrote in a July letter to the rating firm's chief compliance officer, a copy of which was reviewed by The Wall Street Journal. In the letter, Mr. Kolchinsky cited other instances in which he believes inflated ratings were given to securities.

Then today, McClatchy Newspapers releases this very damaging investigative report regarding Moody's motives entitled "How Moody's Sold Its Ratings and Sold Out Investors.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

Moody's motives behind issuing fraudulent ratings are made clear in the report:

Wall Street paid as much as $1 million for some ratings, and ratings agency profits soared. This new revenue stream swamped earnings from ordinary ratings.

"In 2001, Moody's had revenues of $800.7 million; in 2005, they were up to $1.73 billion; and in 2006, $2.037 billion. The exploding profits were fees from packaging . . . and for granting the top-class AAA ratings, which were supposed to mean they were as safe as U.S. government securities," said Lawrence McDonald in his recent book, "A Colossal Failure of Common Sense."


One Moody's executive who soared through the ranks during the boom years was Brian Clarkson, the guru of structured finance. He was promoted to company president just as the bottom fell out of the housing market.

Several former Moody's executives said he made subordinates fear they'd be fired if they didn't issue ratings that matched competitors' and helped preserve Moody's market share.

Froeba said his Moody's team manager would tell his team that he, the manager, would be fired if Moody's lost a single deal. "If your manager is saying that at meetings, what is he trying to tell you?" Froeba asked.

Can you say "Criminal Enterprise"?

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I was just about to post this

Just so you know, I'm under the gun until Wednesday and can't post/write a lot of detail, moderate, so I'm hoping the rest of the EPer's take up the slack on posting good and detailed pieces.

Don't forget the rating system (arrow on the bottom left) in case of any sort of trolly type post or comments to get 'em off of the site! Has to be more than one to do it, but if enough of you gang up on a troller (and I think we know what that is by now), you will control what is published on this site.

I think I have fixed security so it won't happen at this point, but, just in case you have the power!

If I see another "Balloon boy" story I'm gonna scream!

(Check out SMC for the dailyshow's major rip on CNN for useless drivel, 24/7)

I am not a RICO statute expert but

I believe Section 1964 of Title 18 allows for civil remedies meaning an individual or entity that can prove it was "injured" as a result of a RICO violation can recovery huge amount of damages (treble damages).

Just saying. - Financial Information for the Rest of Us.