S&P: We Knew Nothing! Nothing!
Repeat that headline in your best Sergeant Schultz voice for maximum effect. Then read the testimony of Deven Sharma, President of Standard & Poors in the same voice:
S&P is not alone in having been taken by surprise by the extreme decline in the housing and mortgage markets. Virtually no one -- be they homeowners, financial institutions, rating agencies, regulators, or investors -- anticipated what is occurring. Although we highlighted to investors looming issues we saw in the housing market as far back as early 2006, the reality remains that in publishing our initial ratings on many of these securities we never expected such severe, negative performance in the housing and mortgage markets. There is no doubt that had we anticipated the extraordinary events that have occurred -- and we did not -- we would have utilized different economic forecasts and would not have assigned many of the original ratings that we did . . . (emphasis added)
You decide: Perjury, or mere ignorance?
A significant number of economists, strategists, academics and blogs all forecast the housing disaster way way in advance. Not only me, but Nouriel Roubini, and James Grant and John Paulson and Jim Rogers and Peter Schiff, and lots of sites: Calculated Risk and The Mess that Greenspan Made and ML-Implode and Mish and Housing Doom and NJ Real Estate Report and iTulip, and, well, you get the idea.
But it turns out that two S&P analysts, April 2007, via an IM conversation, were also discussing it:
Rahul Dilip Shah: btw: that deal is ridiculous
Shannon Mooney: I know right ... model def does not capture half of the risk
Rahul Dilip Shah: we should not be rating it
Shannon Mooney: we rate every deal
Shannon Mooney: it could be structured by cows and we would rate it
IM Conversation via House Oversight Committee
TESTIMONY OF DEVEN SHARMA, PRESIDENT, STANDARD & POOR’S
BEFORE THE COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM UNITED STATES HOUSE OF REPRESENTATIVES
OCTOBER 22, 2008
Ratings agencies 'put system at risk,' CEO says
Testimony shows watchdogs were 'Kool-Aid drinking' lapdogs
MarketWatch 5:19 p.m. EDT Oct. 22, 2008
Credit Rating Agency Heads Grilled by Lawmakers
NYT, October 22, 2008
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Virtually no one -- be they homeowners, financial institutions, rating agencies, regulators, or investors -- anticipated what is occurring.
Er, so what was that Irrational Exuberance speech in 1996 all about? Even the otherwise reckless Greenspan warned about us turning into Japan 12 years ago (really Robert Shiller deserves the credit).
It's not that nobody saw this coming; it's that it was deliberately ignored or kept quiet for profit.
Posted by: super-anon | Oct 22, 2008 4:04:41 PM
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