Wednesday, October 22, 2008

The Credit Ratings Process, Illustrated

Notwithstanding my previous comments on the talent and work ethic of the current crop of twenty-somethings, I do have to admit that there are few things in life as amusing as a snarky youngster live-blogging the current C-SPAN broadcast of Congressional hearings on credit ratings agencies, chaired by Rep. Henry Waxman.

Not to mention, you occasionally get some timely and revealing reportage thrown into the bargain, as well:
Some Congressman, not sure who 'cause I missed his name, just brought up the following IM conversation between two S&P employees, to former residential mortgage ratings managing director, Frank Raiter, from several months back (no name check on the deal but surely the DB brain trust can hazard a guess):

S&P employee #1: By the way that deal is ridiculous
S&P employee #2: I know, right. That model definitely does not capture half the risk
S&P employee #1: We should not be rating it.
S&P employee #2: We rate every deal. It could be structured by cows and we would rate it.

Congressman: What do you think this means, Mr. Raiter?
Raiter: Um...I don't know...I guess a casual acceptance of these things.
Sean Egan (of Egan-Jones) chimes in: Perhaps that cow was particularly talented?

Which leads me to speculate on the true nature of the credit rating process in general:

The Innocent Eye Test, indeed.

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