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December 21, 2007


Fine-tuning the Model to Reach the Desired Credit Rating

Rating Subprime Investment Grade Made `Joke’ of Credit Experts, by Kathleen M. Howley

“Investment banks sold $1.2 trillion of securities backed by high-interest subprime mortgages in 2005 and 2006. None of this could have happened without the participation of the three biggest arbiters of credit — Moody’s Investors Service, S&P and Fitch Ratings [ed. Oligopoly, anyone?].

About 80 percent of the securities carried AAA ratings, the same designation given to U.S. Treasury bonds … ‘Issuers got guidance from rating companies on how to shape their subprime securities to win the ratings.’

‘Our attitude used to be: We’re not here to be your friend. We’re here to look at credit quality. But that began to change.’”

Echoes of Andersen and Enron, except this is a much bigger disaster. We know what happens when auditors, and now credit rating agencies, get cozy with clients.

This entry was posted on Friday, December 21st, 2007 at 12:28 pm (utc+8) and is filed under Bonds.

7 Responses to “Fine-tuning the Model to Reach the Desired Credit Rating”

  1. Capital Gain said:
    December 22nd, 2007 at 2:03 am

    Yes. Fitch belatedly bellies up to the bar and places ABK on Neg Watch today just as they did with MBI yesterday, which starts the clock ticking on the mad scramble for capital or crippling downgrades.

    Those have been great shorts.

    Also, the Neg Watch placed on 173,000 bond issues yesterday will probably be repeated later today.

    Ho hum.

    In other news, the discount rate spread continues to increase…

  2. C. Maoxian said:
    December 22nd, 2007 at 9:04 am

    Cap: You’re a very close reader of CalcRisk’s site. :-) Actually I was looking at the short-term liquidity today and it looked OK and was probably part of the reason why the market rallied. But then again, what do I know?

  3. Capital Gain said:
    December 22nd, 2007 at 9:34 am

    I have been for years. I’ve found nothing like it on the ‘net. If there is I’d sure like to know where. The other 10 or 15 blogs I’ll surf thru are inconsistant, CR virtually always has something useful daily.

    There was liquidity in the market today, yes. Short covering as well.

  4. C. Maoxian said:
    December 22nd, 2007 at 10:57 am

    Cap: Interesting that CalcRisk is offering a newsletter — only $5 a month. I think maoxian is consistently interesting and has useful info, but I’m biased.

  5. Capital Gain said:
    December 22nd, 2007 at 12:17 pm

    I agree about your blog. Great stuff!

  6. credit rating said:
    January 30th, 2008 at 11:59 pm

    So if the banks are dropping their credit does it mean we are having bad credit? And can we loose our money?

  7. C. Maoxian said:
    January 31st, 2008 at 7:49 am

    credit rating: I’m not sure if you’re spam or not? If you reply I’ll know you’re not. :)

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