Go on ya Jose! You tell Moody’s where to go. Fuck off that’s where.

Similarly pointed remarks, huh? According to Moody’s, et al: similarly pointLESS remarks.

Question: when a downgrade is performed, a select few benefit greatly. Who are they? Do they have direct links to the rating agencies themselves? (Rhetorical questions, people…)

If the EU politicians actually dealt with the crisis rather than kicking the can down the road maybe some confidence would return to markets.

The Free market doesn’t work, it only serves to protect the investors, so if you have no money you are useless to them. Time to radically rethink our approach to living. But somebody else do it first because i don’t want to take the pain. Now, is that me or the conscience of Ireland speaking?

Watch the documentary ‘ the indside job’ interesting viewing and you see who’s sleeping with who and why upgrading and/downgrading benefits individuals
I sum up by saying we are been led up the garden path by a minority of people with the majority of the wealth and our government are no more influential than I am where I work……….

“Exports are growing strongly and the country is regaining competitiveness. All of this is set to underpin a return to growth this year.”

Is there an echo in here? ‘Cos I’m sure I heard that somewhere before… Could it have been last year? Or the year before? Much as I loathe Moody’s and all their works, would you advise anyone to invest in Ireland’s short- medium-term future?

As long as the EU continue to charge Ireland extortionate interest rates to basically save the Euro then Ireland will never recover. That makes Moody’s ratings about right!

Rating the rating agencies- the case of Moody’s Corp

A fact that quite a few investment decision makers seem to disregard is that ratings agencies are under no legal obligation since technically their job is only to give an opinion, protected as free speech, in the form of ratings.

Indeed In a recent special report about proposed regulation changes, Moody’s said the agencies should not be seen as “gatekeepers in the financial markets” and their ratings should not be used as substitutes for disclosure by issuers.

Nevertheless, markets do rely heavily on rating agencies. According to former IMF officials, in Latin America during the debt crisis of the 1980s and 1990s, rating agencies were a “destabilizing factor”. They did not warn the markets when they should have and they did actually create more noise when it was not the appropriate thing to do.

Up till about 10 years ago, rating agencies used to be paid mostly by investors, to give their opinions on any particular debtor. At that point onwards they started taking more income from businesses and government who wished to obtain a rating for themselves. This exposed the rating process to the possibly corrupting influence of the rated entities. Especially so, as the competition grew between rating agencies to acquire new clients, and grow purely in terms of coverage and quantity. Not quality.

In the 2 -3 years preceding the crunch, Moody’s purged most of its compliance department and people who had raised questions about business/market share concerns encroaching on ratings quality, and who tried to erect a firewall between business/market share and ratings quality.
Moody’s replaced them all with executives from structured finance who lacked a background in compliance, and which had assisted Wall Street in packaging loans into securities for sale to investors. These very people awarded the highest ratings these very pools of mortgages that soon were downgraded to junk. Most of them are still working for Moody’s, awarding ratings.

As reported before congress by former employees, Moody’s bullied its staff into a rating race with competitors, resulting in complacency with rated entities, a culture of willful ignorance and overall hasty and haphazard rating practices.
In one instance an employee was sacked for seeking an upgrade for a company (Express Scripts). Moody’s management blocked the upgrade, based on that company not having paid for its upgrade.

In at least one case (Hannover Re), Moody’s has been accused of a form of Blackmail called “Greenmail” (where no threat needs to be made for the blackmail to be effective forcing the victim to pay out).
Moody’s approached Hannover Re to offer its rating services, but Hannover Re declined. Moody’s then went on to give free unsolicited ratings to Hannover Re, but gradually lowering them, when on the other hand other rating agencies still gave Hannover Re their top ratings.
Moody’s again approached Hannover Re, and again their rating services were declined.
Moody’s then immediately went on to downgrade Hannover Re several notches into junk status, and Hannover Re lost USD 175m overnight.
Hannover Re won its case on the back of the other 2 rating agencies (S&P and A.M. Best) still awarding and confirming their top ratings, and Moody’s having based its rating purely on publicly available information.
Evidence is hard to obtain as to how widespread this kind of practice is within Moody’s. Businesses typically are not keen on revealing how they have been blackmailed. But this episode ties in with other reports, and is hard to take in isolation.

Mid-level employees also acknowledged that their stock options eventually came to cloud their decision making. The Securities and Exchange Commission issued a blistering report on how profit motives had undermined the integrity of ratings at Moody’s and its main competitors, Fitch Ratings and Standard & Poor’s, in July 2008, but the full extent of Moody’s internal strife never has been publicly revealed

What is worthy of note here is how easily members of Moody’s staff normally involved in the actual credit risk analysis can be pressured by their management, which most likely has no objective notion of the companies or governments they are rating.

It is also worth mentioning that moody’s evaluations are sometimes solely based on publicly available information and quantitative assessments based on malleable mathematical models, without access to more extensive additional management information, or through close cooperation with any management-level staff.

In its “Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies“, the SEC made a number of recommendations, solely to ensure that staff in NRSROs (rating agencies) involved in the actual analysis of credit worthiness are independent from pressures from rated entities.
But even if focusing purely on this one possible source of corruption, the SEC’s recommendations have a number of loopholes, including, but not limited to, the fact that two rating agencies do not appear to prohibit structured finance analysts from owning shares of investment banks that may participate in RMBS and CDO transactions.

But the most strident loophole and challenge to the view that Moody’s provide objective opinions on credit worthiness of any company or government results from the composition of Moody’s shareholders: 100% private and hedge funds, which are typically –and most likely- heavily invested in highly leveraged corporate and sovereign debt derivative trading:

- Berkshire Hathaway: Hedge fund (http://www.berkshirehathaway.com/)
- Capital Research Global Investors: Fund (http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=45093803)
- Capital World Investors: privately owned investment manager, subsidiary of Capital Research Global Investors (http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=45093803)
- T Rowe Price: Hedge Fund (http://corporate.troweprice.com/ccw/home.do)
- Value Act: Hedge Fund: (http://www.businessweek.com/magazine/content/04_50/b3912125_mz020.htm)

On the face of it, and owing to rating agencies’ influence on markets, this places each of these shareholders in a position to permanently benefit from “insider” information.
However, on the back of Moody’s stance that they only express an opinion which happens to have an coincidental influence on markets, the regulators choose not to regulate their activities.

But this is way beyond the point. As seen above, what is worthy of note is how easily members of Moody’s staff normally involved in the actual creditworthiness analysis can be pressured by their management, which most likely has no objective notion of the companies or governments they are rating.

In other words, dealings by these hedge funds are not influenced by the ratings, but most likely it is quite the reverse: hedge fund deals determine the ratings:
Here is a bit of “fiction”:
First hedge funds make their deals:
- naked short selling bonds without limits (they can sell more bonds than actually exist)
- buying CDS without limits
- entering into Contracts For Differences deals (CFDs): basically a bet that bond prices will go down. There again without limits

These dealings from powerful hedge funds being highly leveraged, their notional amounts can most probably be counted in trillions, and can easily be timed and orchestrated to aggressively push market prices in the desired direction, spooking investors into a panic, thereby creating a sell-out snowball effect, pushing markets further in the same direction, as in a classic market manipulation.

Then in order to compound the panic effect and complete market manipulation, these hedge funds contact Moody’s management and tell them what to rate, how to rate it and when.
The market move accelerates.
Hedge funds maximise and take their profits.
Countries cannot borrow anymore.
Taxpayers are strangled.
Businesses are starved out of credit, and are ultimately wound up.
Unemployment and misery rise.
But…. Moody’s shareholders made a kill!

Moody’s would easily dismiss this as fiction, but this fiction happens to be impossible to prove impossible!
And in view of the proven prevailing culture in Moody’s, it inevitably relates to facts.

After all, if you were a one of these Wall Street hedge fund managers, and also a shareholder of Moody’s, what would you do?

Especially, as in many cases among Wall Street or London City-based financiers, one has an ideological or even fanatical devotion to the dream of tearing the Euro apart (how dare it challenge the Dollar or the Pound?), and one behaves like as if one were part of a pack of “market Hyenas”, always trying to spot the weakest link, trying to tear it apart from the Euro herd (watch a programme on predators stalking buffaloes in the African savanna, you’ll get the picture).

Luckily, the influence of rating agencies is slowly starting to wane.
According to a recent Reuters report (SOME INVESTORS CUT LINKS TO RATING AGENCIES – 19/07/2011), some of the world’s largest asset managers are cutting ties to credit rating agencies, potentially signalling the beginning of the end of their grip on global financial markets.

Fund Managers responsible for billions of euros of fixed income investments said rating agency research tended to be backward-looking and superficial.
There is now a broad push for development of proprietary research teams among the investment industry. Research produced ‘in-house’ is said to be more detailed, more forward looking and timelier than that of the agencies.

Conclusion:

In the past Moodys’ track record and culture of willful disregard for objectivity, its active prioritization of its profits over trustworthiness, and even its occasional use of blackmail, are greatly “credited” for being a leading cause behind the current crisis.

Unfortunately, Moody’s has retained all the elements that drove to the current situation, and purged all those who were trying to avoid it.

As a result, a mismatch between competence and purpose in the staff makeup, combined with an absence of mechanisms and structures to safeguard independence of rating opinions already make Moody’s unsuitable as a source of Credit Risk information.

But what by far makes it much more unsuitable is the glaring conflict of interest presented by the composition of its shareholders, who have massive vested interests in the outcome of the rating process. This presents a wide-open door to insider trading and to a massive on-going market manipulation.

In view of this, it is not surprising that a growing number of decision-makers in the investment management industry have opted to sever their reliance on or links to rating agencies.

When it comes to rating debts from large corporations or governments, Moody’s does not reach the minimum level of objectivity, and alternative sources of credit risk information should be considered instead.

Of course, this is only my –educated- opinion, and is protected by freedom of speech!
Sources:
Hannover Re:
http://www.insurancejournal.com/news/international/2003/03/28/27496.htm
http://www.businessinsurance.com/apps/pbcs.dll/article?AID=/20080813/NEWS/200013668
http://en.wikipedia.org/wiki/Credit_rating_agency#Criticism

McClatchy interview
http://media.mcclatchydc.com/static/pdf/Kevin-Q&A.pdf
McClatchy Report
http://www.mcclatchydc.com/2009/10/18/77244/how-moodys-sold-its-ratings-and.html
http://www.mcclatchydc.com/2009/10/18/77244/how-moodys-sold-its-ratings-and.html#ixzz1S4jtpmTY
http://www.mcclatchydc.com/2009/10/18/77244/how-moodys-sold-its-ratings-and.html#ixzz1S4jQ0eQU
http://www.mcclatchydc.com/2009/10/18/77244/how-moodys-sold-its-ratings-and.html#ixzz1S4kEas00

SEC Summary Report of Issues Identified in the Commission Staff’s Examinations of Select Credit Rating Agencies:
http://www.sec.gov/news/studies/2008/craexamination070808.pdf

Reuters article on waning influence of rating agencies:
http://www.reuters.com/article/2011/07/17/us-usa-debt-ratingsagencies-idUSTRE76G1H220110717

Alec Klein -Washington Post – article on power abuses by Credit Raters:
http://www.washingtonpost.com/wp-dyn/articles/A8032-2004Nov23.html

Reuters article: 06/07/2011 EU attacks credit rating agencies, suggests bias
http://www.reuters.com/article/2011/07/06/eurozone-ratings-barroso-idUSLDE7650ST20110706

Wikipedia
http://en.wikipedia.org/wiki/Moody’s

I’d like to hear some authoritative views on Methassus questions…

As far as I’m concerned Moody’s are engaging in financial terrorism. Their ratings have a negative effect which they then downgrade on, and round and round it goes. If Ireland had the same rates on the bond Market as we had before the crash we’d be in a far better position. This would make us a better risk for investors. But Moody’s actions are destroying ireland and europe and they’re threatening the US now.