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Title: MOODY’S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed (Not Breaking News)
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Published: Aug 19, 2011
Author: http://www.businessinsider.com/moodys-an
Post Date: 2011-08-19 14:47:44 by tom007
Keywords: None
Views: 109
Comments: 4
MOODY’S ANALYST BREAKS SILENCE: Says Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed By Henry Blodget | Daily Ticker – 2 hours 33 minutes ago tweet12 Share Email Print Provided by Business Insider A former senior analyst at Moody's has gone public with his story of how one of the country's most important rating agencies is corrupted to the core. The analyst, William J. Harrington, was employed by Moody's for 11 years, from 1999 until his resignation in 2010. From 2006 to 2010, Harrington was a Senior Vice President in the derivative products group, which was responsible for producing many of the disastrous ratings Moody's issued during the housing bubble. Harrington has made his story public in the form of a 78-page "comment" to the SEC's proposed rules about rating agency reform, which he submitted to the agency on August 8th. The comment is a scathing indictment of Moody's processes, conflicts of interests, and management, and it will likely make Harrington a star witness at any future litigation or hearings on this topic. The primary conflict of interest at Moody's is well known: The company is paid by the same "issuers" (banks and companies) whose securities it is supposed to objectively rate. This conflict pervades every aspect of Moody's operations, Harrington says. It incentivizes everyone at the company, including analysts, to give Moody's clients the ratings they want, lest the clients fire Moody's and take their business to other ratings agencies. Moody's analysts whose conclusions prevent Moody's clients from getting what they want, Harrington says, are viewed as "impeding deals" and, thus, harming Moody's business. These analysts are often transferred, disciplined, "harassed," or fired. In short, Harrington describes a culture of conflict that is so pervasive that it often renders Moody's ratings useless at best and harmful at worst. Harrington believes the SEC's proposed rules will make the integrity of Moody's ratings worse, not better. He also believes that Moody's recent attempts to reform itself are nothing more than a pretty-looking PR campaign. We've included highlights of Harrington's story below. Here are some key points: Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--and then vote with management to give the securities the higher ratings that issuer clients want. Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart. Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business. At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether. Harrington's story at times reads like score-settling: The constant conflicts and pressures at Moody's clearly grated on him, especially as it became ever clearer that his only incentive not to "cave" to an issuer's every demand was his own self-respect. But Harrington's story also makes clear just how imperative it is that the ratings-agency problem be addressed and fixed. The current system, in which the government anoints organizations as deeply conflicted as Moody's with the power to determine sanctioned bond ratings is untenable. And the SEC's proposed rule changes won't fix a thing. Harrington's story is startling, both in its allegations and specificity. (He names many Moody's executives and describes many instances that regulators and plaintiffs will probably want to take a closer look at.) Given this, we expected Moody's to quickly denounce Harrington as a disgruntled ex-employee and reaffirm its confidence in its ratings processes and integrity. Instead, Moody's did not return multiple calls seeking comment. Pagination Previous Madoff Whistleblower: Big Banks Are Ripping Off Pension Funds No Silver Bullet for Housing, But GTIS’s Shapiro
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#1. To: tom007 (#0)
(Edited)
One does wonder how a ratings agency is supposed to make money. Who would pay them for their opinions besides those about whom they give an opinion?
its incestuous on its face.
The Water Cooler Jim Not that this surprises anyone but with confirmation by an insider this high up the SEC should finally take this seriously. Lert : @Jim: Problem is that the SEC is shoulder deep in it's own ethics and incompetency issues... Throw in both Presidential and Congressional ineptitude, and there is no way that ANYONE should risk their money in US markets.. .. Ruckus@Lert: "Harrington's story at times reads like score-settling" More like Self-preservation. Rats leaving a sinking ship. More to come. Three Federal Reserve officials are starting to speak out about why they disagree with Chairman Ben Bernanke on the central bank's latest policy move. Henry Blodget : @the dalaibama: Why would Congress want me to write this? Congress has sat on its bum for four years and done nothing to change this. VA Man @Jim: Ahhhhhh one problem. Moody's is owned by ...... Warren Buffet ! Obama's buddy. Of course all these rating agencies are all corrupt. Is there any wonder why all three got it wrong on the mortgage mess? They were all on the take. The only reason S&P is being investigated and Moody's and Fitch won't be is because S&P downgraded US Treasuries. That was a no no and now they are getting investigated by the Feds. kodes @Jim: W. Buffett's testimony in 2009 regarding Moody's was incredible. Buffett is certainly the greatest investor of his era, but he's also the greatest investment PR man ever - the (honest / respectable) image he cultivated in the public eye for a generation is complete BS. Don't believe me - watch it on youtube and see for yourself. Davey Crocket It's not just ratings agencies, I bet if you look into the practices of any auditing firm or wall street analyst shop, it's the same conflict of interest. Organizations cannot give honest public guidance about companies who are paying them to provide that guidance. It's a joke. If you want integrity in these areas you need such firms to be financed by the people who *use* their information, not those who provide it. But an honest broker probably doesn't pay as well, so maybe that flies in the face of laissez-faire free market capitalism.. . WhataSurprise: This kind of stuff is everywhere. Better Business Bureau, JD Power, etc etc. Just made us crap. Pay me and I'll give you seal of approval or an award. You can Bank on it. Read more: www.businessinsider.com/m...=2#comments#ixzz1VYHRXiW0
Dagong refutes claims of AAA 'generosity' By Wei Tian (China Daily) BEIJING - Dagong Global Credit Rating Co Ltd on Friday denied accusations of "generosity" in the ratings it has awarded to domestic companies and some local government bonds, which many market experts felt were high risk. Some media outlets pointed out that Dagong has awarded the highest rating (AAA) 156 times in the past year. Most of those AAA ratings were awarded to bonds issued by State-owned enterprises or local government financing vehicles which many experts consider to be a potential default risk. However, the agency claims that the number is misleading because "one company may have issued multiple debts within a year", and 156 was the total number of ratings given to all bond issuances by AAA-rated companies. "Although some issuing bodies do not have AAA ratings themselves, their bonds may get the highest rating because of good guarantees," said Jin Yongshou, Dagong's managing vice-president. There are only 39 issuers with a AAA rating on Dagong's list, accounting for 11.5 percent of all those rated. The proportion is lower than the average level in China of 13 percent (220 out of 1680), media reports said, citing the financial data service provider Wind Information Co Ltd. Dagong has also provided ratings for 86 out of 263 bonds issued by local governments nationwide, of which about one-sixth were given an AAA rating. "Local government bonds were issued by the "best of the best" financing vehicles, and account for less than 10 percent of the 6.7 trillion yuan ($1.04 trillion) direct debt of local governments," said Gang Meng, director of Dagong's rating committee. Although there may be regional risks in the overall debt of local governments, the credits of the bonds are still secure, Gang said. Dagong is the only major ratings agency in China that has not received an injection of foreign capital. The agency garnered much publicity for its downgrading of the United States' sovereign credit rating on Aug 3, five days before Standard & Poor's in the United States made a similar move. However, eyebrows were raised earlier this month when Dagong gave an AAA rating to a short-term bond issued by the Ministry of Railways, despite the fact that the ministry was still embroiled in the aftermath of a high-speed rail accident in which 40 people died. Although Dagong defended the rating - even higher than China's AA+ sovereign debt rating - by saying the ministry has sufficient cash flow and a strong ability to repay, the market thinks otherwise. "Considering the bonds issued are mostly backed by local governments, Dagong has a reason for giving them the highest rating, because Chinese local governments never go bankrupt," said Fan Mingtai, a senior researcher with the Institute of Quantitative & Technical Economics at the Chinese Academy of Social Sciences.
#2. To: Pinguinite (#1)
"Satan / Cheney in "08" 
#3. To: tom007 (#0)
Some of the comments which followed the BI story:
#4. To: tom007 (#0)
China rating agency denies pulling similar stunt:
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