Moodys Warning Labels (sub-prime version)
From Tuesday's WSJ:
"In an acknowledgment that the system it used to rate billions of dollars of mortgage-related securities was potentially flawed, Moody's Corp. said it is considering a new way of rating those and other sometimes-volatile structured finance vehicles.
The credit-rating firm is considering an overhaul of its rating procedures that could include new labels to help investors distinguish collateralized debt obligations and other structured-finance investments from corporate bonds and Treasury securities. . .
More broadly, the ratings firm is trying to decide whether to add warning labels that essentially acknowledge the limitations of its ratings."
>
Let me make sure I understand this:
1. Moodys (and S&P and Fitch's) labelled a bunch of horrific junk -- RMBS, CDOs, CDS, and other stuff -- high quality AAA.
2. The banks and brokers all shoveled this crap to their clients around the world, many of whom then promptly blew up.
3. Once the music stopped, these banks and brokers got caught holding loads of this AAA rated shit paper, leading to $130 billion -- and counting -- in write downs.
4. The banks then saw their credit ratings get downgraded by the same companies that rated the original crappy paper AAA.
AND NOW THE SOLUTION PROPOSED BY THOSE SELF SAME RATING AGENCIES IS TO PUT A WARNING LABEL ON THEIR RATINGS?
Are you shitting me? Words fail me . . .
I'm thinking waterboarding the entire staff is the way to go with these criminal idiots, and instead, they think a mattress tag is a solution?
Well that's just fine. I'll write the warning for them:
WARNING: THESE BONDS HAVE BEEN RATED AAA BY A MAJOR RATING FIRM. THESE RATING FIRMS HAVE PROVEN THEMSELVES TO BE CLUELESS, MONEY-LOSING INCOMPETENTS IN EXCESS OF A TRILLION DOLLARS IN LOSSES. THEY WERE PAID HANDSOMELY BY THE BOND UNDERWRITER, AND ARE HOPELESSLY COMPROMISED. PURCHASERS OF THESE BONDS ARE ADVISED TO IMMEDIATELY KILL THEMSELVES, THUS SPARING THEIR LOVED ONES EMBARRASSMENT IN THE FUTURE. ALSO, THESE BONDS MAY LOSE VALUE. I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. WHILE PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RETURNS, YOU SHOULD BE AWARE THAT PAST PERFORMANCE ALSO SUCKED. DONT BLAME US IF YOU LOSE ANY MONEY, AS WE HAVE NO IDEA WHAT THE F$#@ WE ARE DOING ANYWAY. REALLY, YOU ARE ON YOUR OWN.
Now thats a disclosure . . .
>
Source:
Moody's Weighs Warning Labels For Its Rating
AARON LUCCHETTI
WSJ, February 5, 2008; Page C1
http://online.wsj.com/article/SB120215330254641705.html
Wednesday, February 06, 2008 | 07:30 AM | Permalink
| Comments (43)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e55017bd858833
Listed below are links to weblogs that reference Moodys Warning Labels (sub-prime version):
Comments
can you spell
C-L-A-S-S A-C-T-I-O-N
rating agencies = RIP
Posted by: Stuart | Feb 5, 2008 10:29:16 PM
Until they change their business model, and get paid by buyers, not issuers, the rating agencies will have no credibility.
Posted by: BuffaloBob | Feb 5, 2008 10:31:16 PM
this is like an auditors CPA letter--saying managementt is responsible for financials even though we sent a crew of auditors to look over the books and were paid handsomely.
But, wtf is new?
Posted by: hal | Feb 5, 2008 10:43:35 PM
You left out the part that goes, "Removing this tag is a Federal crime ,,,"
Posted by: jm | Feb 5, 2008 10:43:51 PM
barry, you got a better solution? on a seperate but related topic, reselling this junk to fannie mae with the new super jumbo loans as part of a bailout stimulus plan seems kind of criminal. If these loans bang up fannie mae like they banged up countrywide, who holds the bag?
Posted by: chris | Feb 5, 2008 10:49:32 PM
The good news for American public is that if it wasn't for these guys, those toxic waste would all end up in American soil, now they are shipped worldwide.
"SHARE THE PAIN" is the motto here, nothing more, nothing less.
So looking back,
- Dot.com bubble bursts, FED moves the buble to Real Estate
- Everybody knew the RE bubble was going to burst, so they created those CDOs, market them AAA and shipped all around the world.
- Another clue of the RE/Credit bubble bursting was the change in consumer bankruptcy rules
anyway, now that those are bursting the next NATURAL step is increased rates on mortgages, which to me sounds like inflation.
Why increased rates?
1-) Because that is a way of justifying lower house prices (e.g. "I am expected to pay $1200 per month (150K house at 9% interest) to get that same house in 2009, which is essentially same as buying it in 2004 (Same house at 200K with 6% interest))
This will create interest for buying house too (i.e. I better buy a house before interest rates go up even more)
2-) Because China and others will not be satisfied with the measly returns for the government debt.
For years, they said "oh dear American friend, here, cheap money for your people, buy more so we can manufacture more", that was win-win at the time, now that they see Americans are changing attitudes, the show is over so the landlord (e.g. China) will ask for a rate/rent increase
In the meanwhile, people with their 401Ks will lose their retirement savings to shorting institutions (GS, hedge funds, etc.) and one day when they can't take it anymore, park their money to some 2% paying money market fund.
So, the sooner we get the interest rates higher, the better for the greater good (so 401Ks can switch from stocks but don't get silly returns)
Everyday it gets delayed, the more the public loses.
Think of buying QIDs not as shorting the american dream, but as an hedge to decreasing value of your home.
Posted by: Mich(IDX1881) | Feb 5, 2008 11:00:09 PM
I've just installed Moody's as the 3:1 favorite in this year's Upperclass Twit of the Year.
Posted by: Winston Munn | Feb 5, 2008 11:19:39 PM
Barry! My man! Tell 'em like it is!
Posted by: Marcus Aurelius | Feb 5, 2008 11:27:08 PM
Barry,
What is going to happen if the markets and the Bank of England and The European Central Bank continue on uncoupled from the Fed?
Posted by: Neil W. McCabe | Feb 5, 2008 11:35:26 PM
Barry - LOL
Thanks. I needed a good laugh.......That warning label is priceless.
Posted by: Leawoodblues | Feb 6, 2008 12:28:00 AM
Is there anybody in institutional Wall Street who isn't morally bankrupt anymore? To paraphrase "The West Wing's" Josh Lyman:
"I'm so sick of Wall Street I could vomit."
Posted by: Peter Davis | Feb 6, 2008 12:31:51 AM
"PURCHASERS OF THESE BONDS ARE ADVISED TO IMMEDIATELY KILL THEMSELVES..."
Not a wise thing for a pundit to do, Barry. Retract, retract, retract! Then disclaim it.
Wanna stop NYC's Insane Clown Possie, then everyone should immediately unload, even at a loss, because this week will crank global Finance, REIT, energy and commodity stocks down the toilet, then go sideways for a few years.
Starve the looters, then drown them in debt.
Starve the looters, then drown them in debt.
Starve the looters, then drown them in debt.
Keep hope alive.
Posted by: Tiny Tim | Feb 6, 2008 1:19:41 AM
Damn thats hilarious!
Posted by: Street Creds | Feb 6, 2008 1:44:47 AM
My new favorite adviser, R. U. Shittinmee! Love it! QID (isn't that four times a day?) ~mikey
Posted by: ~mikey | Feb 6, 2008 2:48:23 AM
Thanks for the early morning laugh!
It is just hard to believe that they were simply clueless. If they really were they should close shop.
Posted by: Katie | Feb 6, 2008 3:01:18 AM
Wow !!!!! Well said, Barry. Thank you. I would like to also give credit to a writer named "Longwaver" who wrote the following:
The bailout is hilarious... So I'm sitting here holding a flaming bag of shit, but I have this insurance policy that tells me that what I'm really holding is a dozen long stem roses....
Some guy tells me that my insurance is no good so I start to worry that I might have to admit that I'm holding a flaming bag of shit...
Now luckily another guy comes along and tells me that the insurance is just fine....
Wheww... I feel so much better.. .
--
http://tispaquin.blogspot.com/2008/02/longwaver-explains.html
Posted by: Doug Watts | Feb 6, 2008 3:42:51 AM
Ken Lay lives !!!!
In UR DNA !!!!
Posted by: Doug Watts | Feb 6, 2008 3:46:56 AM
I have been reading your stuff for a couple of weeks, and I enjoy it. With this post, I have become a genuine fan. Classic comedy.
Posted by: PONCH | Feb 6, 2008 4:50:34 AM
Not like you BR to be so wishy-washy....this market getting to you?
Posted by: Jay Weinstein | Feb 6, 2008 5:48:02 AM
Barry:
You are kind and charitable. Personaly, I believe that they should all be shot. And, if I were the Dictator, that's exactly what would happen.
Have a great day,
Econolicious
Posted by: ECONOMISTA NON GRATA | Feb 6, 2008 6:48:55 AM
OK, I'm far from the biggest brain, but I do have the ultimate and only solution to the world's economic whoose: Everybody turn in their money to the (new world) treasury department, and let them re-establish a fiat value, (it mightest well equal one and denomination there of), hand it out to every person on the planet, not in equal amounts but in lottery style fashion - some getting much more than others - vis a vis. The people in the know will eventually aquire the bulk of it, like always. You say this never will happen - things do look terrible out there. And I'm not an alarmist, just a realist. We are going to have an Argentina style meltdown. Oh! the bond rating agencies? That is a hard one - how does one develope a system whereby the invisable hand, an equilibrium price can be reached? Can we not create a more fluid market for these things? Why are the prices so sticky? Could you break them up into very small denominations, and then let the average investor take part in the bid/ask process? (I know my spelling is atrocious).
Posted by: Justin | Feb 6, 2008 7:56:59 AM
Suggestion for the rating agencies--take the historic 5 or 10 year rate of default for the particular bond type and subtract it from 100. Ratings would be 97.59, 95.2, etc., etc.
If there isn't a 10 year track record for the bond type, it should be clearly stated.
Too simple? Too clear?
Posted by: Neal | Feb 6, 2008 8:34:20 AM
Barry,
"I JUST WET MYSELF MERELY THINKING ABOUT THIS PAPER. . ."
I think I just did. :(
Brilliantly hilarious.
Posted by: Strasser | Feb 6, 2008 8:44:01 AM
Barry,
Chill, dude.
Posted by: PureGuesswork | Feb 6, 2008 9:15:44 AM
Can the rest of the world join US Class Actions? Because they are damn well entitled to.
Posted by: DC | Feb 6, 2008 9:33:11 AM
