This actually makes me feel sick…
The credit ratings agencies Moody’s and Standard & Poor’s received next to no punishment for their involvement in the irresponsible AAA ratings of CDOs leading up to the 2008 financial crisis.
Moody’s for example, left space for a margin of error of around 50 percent when modelling mortgage backed securities, in practice their models were actually off by a mere 20,000 percent.
Now, following a law suit that the ratings agencies settled on, with a payout of $200 million USD (which resulted in a rise in stock price because of the “good news”), released emails showed employees within the agencies clearly knew about their dangerous ratings and the consequences that could occur.
”Lord help our fucking scam . . . this has to be the stupidest place I have worked at," writes one Standard & Poor’s executive.
“As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst.
“If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man.
“Let’s hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.
RollingStone have a terrific article about the recent revelations, and if you’re looking for a more in depth explanation of how terrible wrong (and obviously corrupt) the ratings agencies were, Nate Silver’s The Signal and the Noise is a great book to pick up that looks into around predictions and how often we get them wrong.
TLDR: The Daily Show - Money Boo Boo
Internal e-mails implicate credit rating agencies in the 2008 financial crisis. (04:33)