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Signs of the Times: Insecure Securities and Irregular Regulation

COMMENT: A former Moody’s employee has stated for the record that the firm’s employees were pressured to give AAA ratings to instruments that the company’s own internal memos referred to as “shitty.”

In addition, it turns out that the SEC has destroyed records of scandals dating back 20 years.

“Moody’s managers Pressured Analysts: Ex-Staffer” by Sarah N. Lynch; reuters.com; 8/19/2011.

EXCERPT: An ex-Moody’s Corp derivatives analyst said the credit-rating agency intimidated and pressured analysts to issue glowing ratings of toxic complex, structured mortgage securities.

In a 78-page letter to the Securities and Exchange Commission, William Harrington outlined how the committees that make the ratings decisions are not independent and how managers often intimidated analysts.

“The management of Moody’s, the management of Moody’s Corporation and the board of Moody’s Corporation are squarely responsible for the poor quality of previous Moody’s opinions that ushered in the financial crisis,” he wrote.

“The track record of management influence in committees speaks for itself — it produced hollowed-out (collateralized debt obligation) opinions that were at great odds with the private opinions of committees and which were not durable for even a short period after publication,” he added. . . .

“Report: SEC Has Destroyed Wall Street Probe Records for 20 Years” by Michael Winter; USA Today; 8/18/2011.

EXCERPT: A former Securities and Exchange Commission lawyer has told Congress the Wall Street regulator has routinely destroyed records of initial investigations over the past 20 years, obliterating evidence of possible financial crimes by some of the same firms and individuals involved in the 2008 meltdown, Rolling Stone reports.

One top agency official estimated that 18,000 investigations were involved, including two aborted inquiries into the activities of Bernard Madoff, who in 2009 pleaded guilty to a $20 billion Ponzi scheme that sent him to prison for 150 years.

Rolling Stone writes, “By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. …” . . .

Discussion

2 comments for “Signs of the Times: Insecure Securities and Irregular Regulation”

  1. […] Insecure securities and irregular regulation […]

    Posted by The Standards and the Poors: Series of articles on how the « downgrade » has been a dog-and-pony show to hurt U.S. economy and citizens | lys-dor.com | August 27, 2011, 4:29 pm
  2. http://www.telegraph.co.uk/finance/financialcrisis/8721151/Market-crash-could-hit-within-weeks-warn-bankers.html

    Market crash ‘could hit within weeks’, warn bankers
    A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.

    Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group’s implosion nearly three years ago.

    Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender’s bonds against default is now £343,540.

    The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

    “The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008,” said one senior London-based bank executive.

    “I think we are heading for a market shock in September or October that will match anything we have ever seen before,” said a senior credit banker at a major European bank.

    Posted by R. Wilson | August 29, 2011, 8:50 pm

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