Monday, April 6, 2009
Rating Agency SARBOX
"Credit-rating companies, widely assailed for their role in fueling the financial crisis with overly rosy debt ratings, stand to make a billion-dollar windfall in the government's latest attempt to heal the credit markets. ... 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 rating companies are wrong this time around, the [Fed] and the Treasury--and therefore the taxpayers--will be on the hook for some losses. ... At a Senate hearing in Washington earlier this month, Fed Chairman Ben Bernanke said the central bank has looked at the models of the major rating companies as is 'comfortable' they can rate securities eligible for the new program 'in an appropriate way.' ... 'Until the rating firms bite the bullet and develop forward-looking signals and methods, it's going to be the same old, same old, and their models can be gamed,' says Ann Rutledge, principal of New York structured-finance advisory firm R&R Consulting and a former credit-rating analyst", Serena Ng and Liz Rappaport at the WSJ, 20 March 2009.
SARBOX 2! Sarbox was a Big 87654 windfall of increased audit fees. Assuming Zimbabwe Ben (ZB) knows this, I conclude the Fed is knowingly creating a rating agency (RA) windfall. Why? ZB is "comfortable", means the RAs will say what ZB tells them to say and ZB will use them to game the system! Like the Big 87654 did not "blow the whistle" on insolvent banks, apparently at Uncle Sam's behest, the RAs will pass on all kinds of financial garbage. I agree with Rutledge and think it's worse than she does. ZB (1590 SATs), is no fool. He knows the "models can be gamed" and will use them to protect the issuers of securities in the program!