Inside Job

watched this last night. Had seen Too Big to Fail and found that less then factual but this one got the blood boiling.

among the many things, having the credit agencies assign AAA ratings to the majority of the CDO's seems downright criminal to me. Doing it so that they could be invested in by retirement accounts is beyond criminal.

To be fair, the cedit agencies had no idea how to do the ratings for quite some time- going on the theory that greater diversification = less risk, it all seemed to work. Boy, were they wrong. Strong argument that, since they didn't know what they were doing, they shoudln't have been doing it. Stronger argument that investors shouldn't have been relying solely (and in many cases they were) on the agency's stamps- and rather elegant, if brutal, proof that that is, in fact, the case.

Michael LEwis' latest, "Boomerang" is a pretty good read on some of the drivers.

I hear what you're saying about the agencies not knowing, but at the same time, they got paid, in part, based on the number of cdo's sold since the investment banks pay the credit agencies. And if this is all so true, what on earth makes them so qualified to rate the world's governments. There has been talk that moody's will be downgrading the U.S. in november, although nobody seems to give a shit since when S&P did it in august, everybody threw their money into treasury bonds.

Part of the reason no one flinched when S&P did it is that Moody's held firm. Most pension funds have restrictions on the debt they can hold- if Moody's downgrades, too, then many of them won't be able to hold US debt, which could make things interesting.

As for what makes the agencies qualified to rate anything, well, they say they're qualified, and people believe them. If investors dont' agree with their ratings, then they can invest accordingly. It certainly makes for a lot of apparent opportunities to take advantage of mispricings in the market (if a company is rated as risky, but they really aren't, you can probably get an outsized return for taking less actual risk).

Now, is that a good thing to base an entire global financial system on? Maybe not...

Saw this a few weeks ago and it blew my mind. The connections between the agencies and banks and government are amazing. Funny, in a peculiar way, to see Dominique Strauss Kahn interviewed before he had his little incident.

Dylan said:

Saw this a few weeks ago and it blew my mind. The connections between the agencies and banks and government are amazing. Funny, in a peculiar way, to see Dominique Strauss Kahn interviewed before he had his little incident.

Click to expand...

I forgot that they interviewed him. Came off as one of the few sane people in the documentary.

Dylan said:

Saw this a few weeks ago and it blew my mind. The connections between the agencies and banks and government are amazing.

Click to expand...

yup

end the fed