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If you want to assert that assorted bad actors screwed over the banks, by all means. I agree that many homeowners, agents and others did in fact screw over mort

If you want to assert that assorted bad actors screwed over the banks, by all means. I agree that many homeowners, agents and others did in fact screw over mortgage issuers - in many cases fraudulently. I'm sure various traders also marked to model in order to get a bonus this year without caring about next year (in their case not so fraudulently). You are correct that the sympathetic voters who engaged in mortgage fraud/etc are not being prosecuted, and are in fact being rewarded by craven politicians. My apologies - I misread your first comment as somehow suggesting that ratings agencies and securitizers were deliberately attempting to cause mispricing.

maxerickson 11y ago
The Senate Permanent Subcommittee on Investigations believed that the banks were putting pressure on the ratings agencies to deliver good ratings: http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/... It's a huge document, V.D, pdf page 274, document page 267, doesn't really dance around the issue: The Subcommittee’s investigation uncovered a host of factors responsible for the inaccurate credit ratings assigned by Moody’s and S&P to RMBS and CDO securities. Those factors include the drive for market share, pressure from investment banks to inflate ratings, inaccurate rating models, and in adequate rating and surveillance resources. In addition, federal regulations that limited certain financial institutions to the purchase of investment grade financial instruments encouraged investment banks and investors to pursue and credit rating agencies to provide those top ratings. All these factors played out against the backdrop of an ongoing conflict of interest that arose from how the credit rating agencies earned their income. If the credit rating agencies had issued ratings that accurately exposed the increasing risk in the RMBS and CDO markets, they may have discouraged investors from purchasing those securities, slowed the pace of securitizations, and as a result reduced their own profits. It was not in the short term economic self-interest of either Moody’s or S&P to provide accurate credit risk ratings for high risk RMBS and CDO securities. (But I agree that there were 2 parties involved in each of the bad loans, the evil bank story is an appealing populist narrative, but not at all the full story.)

maxerickson 11y ago

The Senate Permanent Subcommittee on Investigations believed that the banks were putting pressure on the ratings agencies to deliver good ratings: http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/... It's a huge document, V.D, pdf page 274, document page 267, doesn't really dance around the issue: The Subcommittee’s investigation uncovered a host of factors responsible for the inaccurate credit ratings assigned by Moody’s and S&P to RMBS and CDO securities. Those factors include the drive for market share, pressure from investment banks to inflate ratings, inaccurate rating models, and in adequate rating and surveillance resources. In addition, federal regulations that limited certain financial institutions to the purchase of investment grade financial instruments encouraged investment banks and investors to pursue and credit rating agencies to provide those top ratings. All these factors played out against the backdrop of an ongoing conflict of interest that arose from how the credit rating agencies earned their income. If the credit rating agencies had issued ratings that accurately exposed the increasing risk in the RMBS and CDO markets, they may have discouraged investors from purchasing those securities, slowed the pace of securitizations, and as a result reduced their own profits. It was not in the short term economic self-interest of either Moody’s or S&P to provide accurate credit risk ratings for high risk RMBS and CDO securities. (But I agree that there were 2 parties involved in each of the bad loans, the evil bank story is an appealing populist narrative, but not at all the full story.)