Monday, June 14, 2010

Phil Angelides

Phil Angelides, crisis commission investigation, is centered on the cause of the financial crisis but in simple terms it boils down to one word “GREED”

Phil Angelides, chairs the panel, that opened the hearing into the credit rating agencies shortcomings, his first comments were critical of Moody's for bestowing thousands of high ratings on risky debt that later became unhinged.

The shortcomings of the Wall Street insiders and the rating agencies come down to this simply but understated term, Profits. Ratings were hyped in order to meet Wall Street’s primary motivation and objective, profits and more profits. Investors were the catalyst by which those profits were obtained and as such ratings had to be exploited to draw them in.

But unfortunately Greed is not legislate-able, nor is it a crime unless it involves fraud, and in the case of the financial crisis fraud may have been a big participant.

Eric Kolchinsky one time manager of Moody's Investors Service unit, the division that rated subprime collateralized debt obligations (CDO) is now a "whistleblower" he has testified about being intimidated by management to provide high ratings for these inferior debt obligations. In a prepared comment, former Moody's derivatives vice president Mark Froeba supporting Kolchinsky, said “management used intimidation to create a docile population of analysts afraid to upset investment bankers and ready to cooperate to the maximum extent possible."

Moody's Corp, McGraw-Hill Cos' Standard & Poor's and Fimalac SA's Fitch Ratings have been widely faulted for fueling the crisis by assigning unreasonably high ratings for too long, and then downgrading them too fast. The commission is looking into just how close to the Investment banks these ratings agencies really were.

There have been several class action lawsuits filed against the rating agencies over the financial collapse and their roll in investor related losses. Credit raters are now trying to fend off lawsuits including fraud claims brought by their own shareholders.

Many financial companies, including banks and lenders, have been sued following the housing market bust; but the cases against ratings agencies may be among the most closely watched.

That's because the three biggest agencies Moody's Corp , McGraw-Hill Cos Inc's Standard & Poor's division and Fitch Ratings, part of Fimalac SA, have drawn fire from politicians and investors for awarding top marks to subprime-linked securities that later disintegrated. They've also been criticized as being too close to issuers who foot the bill for their ratings.