Yep, believe it or not, the banks, of all people are asking for more transparency from the credit rating agencies. That’s a bit like asking the local axe murderers to be less ambiguous. But it’s nice the banks thought to mention it, however belatedly.
After all, it’s nearly time for their milk and cookies and nap. They must be all tuckered out from all that fun frolicking in the graveyard of so much capital.
But the dear little fiduciary cherubs are all looking so serious, almost like they have something on their minds. Quite novel, for them.
Bloomberg, which always encourages earnest young financial institutions to play nice with their crayons, comments:
Moody's, S&P and Fitch Ratings underestimated the severity of the worst U.S. housing slump since the Great Depression, the BIS (Bank for International Settlements, Switzerland) report said. The failure of some bonds linked to U.S. subprime mortgages triggered $403 billion of bank writedowns and losses worldwide, contributing to the credit crunch.
“Contributing” almost sounds like it was a donation, but let us not get too starry eyed just yet. BIS sounds like it may have accidentally stumbled upon something:
The firms ``should enhance the information underlying'' their grading of asset-backed securities, the BIS committee said in the report. ``Better information on the key risk factors'' of the ratings is needed, and the companies ``should take system- wide risk into account.''
The limited historical information used in ratings firms' models made the losses worse and the companies also miscalculated the risk of mortgage sellers relaxing their underwriting standards at around the same time, according to the BIS report.
Translation: It would have been nice if they’d had some idea what they were talking about before they got around to rating it.
Oh, I dunno. It’s more fun this way, where nobody has any idea what they’re doing, or why they’re paying for it, and it costs trillions. Really spices up the ol’ barrios.
This is rather interesting, if you’re one of those traditionalists who think credit ratings are supposed to mean something. BIS touches upon a possibility that some of the big kids might have been naughty:
``Some weakly capitalized originators may have taken advantage of transparent rating agency criteria, enabling borrowers to misrepresent occupancy, income, down payment source and/or property appraisals,'' the BIS said.
If BIS means intellectually weakly capitalized, nobody’s arguing.
Ironically, merely destroying large sectors of the US economy means you’re not the only idiots around. Anyone, however enthusiastic, would need help to achieve all these guys have achieved in less than a year. Such intelligence requires stupidity of a standard never before documented in human history.
I’m sure there’ll be a movie, “Beyond The Boundaries of the Morons”, or something like that, and some really cute merchandising. You’ll be able to buy your very own financial genius, in a little window box, and teach it to speak, and maybe even to do a few credit ratings.
One thing for sure. The credit ratings agencies, which were once gods, have fallen a long way. Their credibility will now have to be reincarnated, not just rebuilt.
