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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. ...” . . .


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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