Matt Taibbi's latest in Rolling Stone
On June 19, Matt Taibbi published an article called The Last Mystery of the Financial Crisis (link below), expounding on the role of rating agencies in the 2008 financial crisis.
"Please note that in relation to assumed spread [volatility] for the Aa and A there is no actual data backing up the current model assumptions," he wrote. In lieu of such data, he went on, "We will for now accept the proposal to use the same levels as [residential mortgage-backed securities] given that this assumption is supported by the analysis of the Aaa data . . . and Cheyne's comments on their views of this asset class."Translation: We have no historical data, so we'll just accept your reasoning for the time being, even though you have every incentive in the world to lie about the quality of your product.
While this has already been discussed to death, this piece brings forth internal communications at Moody's, S&P and Morgan Stanley. If nothing else, it at least makes a thoroughly riveting read.
"The real issue is that the loan requests do not make sense," complained a Morgan Stanley employee back in 2005. He noted loans had been made to a "tarot reading house" operator who claimed to make $12,000 a month, and a "knock off gold club distributor" who claimed to make $16,000 a month. "
How is this not making more waves? Am I missing something here?
Link: http://www.rollingstone.com/politics/news/the-last-mystery-of-the-finan…
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