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Investopedia defines pump and dump as: >a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exag

Investopedia defines pump and dump as: >a scheme that attempts to boost the price of a stock through recommendations based on false, misleading or greatly exaggerated statements. Is that not exactly what the ratings agencies and co were doing by giving trash securities AAA ratings?

JumpCrisscross 9y ago
> Is that not exactly what the ratings agencies and co were doing by giving trash securities AAA ratings? This is an astute observation. In a pump and dump, someone lies to sell securities they own with the intention of selling into the inflated price. It's special because it requires no assessment of intent to prove. If you own a security, make false or misleading positive statements about it and then sell into the resulting rise, you pumped and dumped. In 2008, ratings agencies expressed their opinion about a security in exchange for a fee from the issuer. The issuer pointed to those ratings to sell the securities. Everyone knew about the conflicts of interest involved. Selling a stupid product to informed investors isn't illegal. Selling a product you fail to disclose material facts about, or which you knowingly structure to fail, is. Determining whether someone "knowingly" did something is harder than showing they did it. Side note: many complex, structured securities–like CLOs and CDOs–which lost value in the crisis ended up performing as expected, if one held on to them [1]. The ratings agencies were still very wrong about a lot of things. But fewer than we give them credit for. [1] https://www.wsj.com/articles/hunt-for-yield-fuels-boom-in-clos-1508673601 https://www.wsj.com/articles/hunt-for-yield-fuels-boom-in-cl...
deleted 9y ago
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pyre 9y ago
The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers?
- philipodonnell 9y ago
  > The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers? I got you. Ratings agencies are the affiliate scammers in this case. You're right, they didn't buy the scammy products or sell them, but they were paid by the product owners to represent the products as legitimate, which they did and made a ton of money. When the products turned out to hurt a lot of people, the ratings agencies/affiliate scammers threw up their hands with a "how could we have known?" while everyone who got hurt was saying "that is literally exactly what you said you were being paid to do, so if you didn't do that, then WTF were you getting paid for..." Oh.

JumpCrisscross 9y ago

> Is that not exactly what the ratings agencies and co were doing by giving trash securities AAA ratings? This is an astute observation. In a pump and dump, someone lies to sell securities they own with the intention of selling into the inflated price. It's special because it requires no assessment of intent to prove. If you own a security, make false or misleading positive statements about it and then sell into the resulting rise, you pumped and dumped. In 2008, ratings agencies expressed their opinion about a security in exchange for a fee from the issuer. The issuer pointed to those ratings to sell the securities. Everyone knew about the conflicts of interest involved. Selling a stupid product to informed investors isn't illegal. Selling a product you fail to disclose material facts about, or which you knowingly structure to fail, is. Determining whether someone "knowingly" did something is harder than showing they did it. Side note: many complex, structured securities–like CLOs and CDOs–which lost value in the crisis ended up performing as expected, if one held on to them [1]. The ratings agencies were still very wrong about a lot of things. But fewer than we give them credit for. [1] https://www.wsj.com/articles/hunt-for-yield-fuels-boom-in-clos-1508673601 https://www.wsj.com/articles/hunt-for-yield-fuels-boom-in-cl...

deleted 9y ago

[deleted]

pyre 9y ago

The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers?

philipodonnell 9y ago
> The ratings agencies didn't benefit from the "pump" in this case. They just did a poor job of assessing the risk by buying into the idea that the risk was lessened by pooling the toxic assets together. If the ratings agencies were not "pumping and dumping" then who are you claiming are the pumper-dumpers? I got you. Ratings agencies are the affiliate scammers in this case. You're right, they didn't buy the scammy products or sell them, but they were paid by the product owners to represent the products as legitimate, which they did and made a ton of money. When the products turned out to hurt a lot of people, the ratings agencies/affiliate scammers threw up their hands with a "how could we have known?" while everyone who got hurt was saying "that is literally exactly what you said you were being paid to do, so if you didn't do that, then WTF were you getting paid for..." Oh.