triple a failure(from nyt magazine)

[alocispepraluger102]

http://www.nytimes.com/2008/04/27/magazine...agewanted=print

[Guy Berger]

Good article - the kind that makes the NYT worth reading.

To boil it down simply there are have been two main problems with the rating agencies in the current financial crisis:

1) Incentives are out of whack in securitization since those who are paying the agencies prefer to get the highest possible rating.

2) The agencies relied on backward-looking statistical method - so when the underlying statistical process shifted they failed to detect the errors.

Guy

[The Magnificent Goldberg]

Yes, good article that helps the understanding quite a bit.

There's a third problem mentioned in the article. That is that Subprime XYZ had to be rated by Moody's within a day. This leaves almost no time for anyone to learn anything about the individual product. It also implies a throughput that may also not allow time for learning about the generality of what's happening (as opposed to the more leisurely life led by economists, that enabled the Moody's man to see what was going on).

But I wonder what would be the impact on the world financial sector of slowing things down?

MG

[Dave James]

There's a third problem mentioned in the article. That is that Subprime XYZ had to be rated by Moody's within a day. This leaves almost no time for anyone to learn anything about the individual product. It also implies a throughput that may also not allow time for learning about the generality of what's happening (as opposed to the more leisurely life led by economists, that enabled the Moody's man to see what was going on).

But I wonder what would be the impact on the world financial sector of slowing things down?

MG

First of all, yes, thanks for posting this article.

With regard to MG's observation, if Moody's is as reliant and, until recently, as confident in the accuracy of their analytical programs, then scoping out Subprime XYZ shouldn't take more than a day, if that. I think it's just a matter of loading the data and then letting the program do the work. Needless to say, they erred significantly in their unwillingness to recognize two things; first, that the market was changing and, second, that their assumptions were based on outdated and erroneous information. To me, that's just laziness. There appear to be plenty of people, some within their own ranks, who had already hoisted red flags. To just stumble along in blissful ignorance on a business-as-usual basis, in spite of these warnings, is inexcusable.

Gordon Gecko strikes again. "Greed is good". Just ask the upper echelon geek squad at Moody's.

Up over and out.

[The Magnificent Goldberg]

I know a banker who looks back with real regret to the days when your bank manager was a Captain Mainwaring type, who knew you, the butcher, the grocer and the guy who could get stuff on the black market, and could make decision based on his knowledge.

But we don't live in that kind of world any more.

MG