SEC Report on Credit Ratings Highlights Conflict of Interest Inherent in Issuer-Pays Model

By: Wednesday December 19, 2012 11:39 am

The Securities and Exchange Commission released a report on the method for how credit rating agencies get their business, something mandated by the Dodd-Frank financial reform law. And just as expected, it showed a serious conflict of interest in the current business model, where rating agencies are paid by the issuer of securities, and have to compete for their business, adding all sorts of distortions into the kinds of ratings they give. A better model, envisioned by Dodd-Frank at first but then put into this study, would allow an oversight board to dole out to qualified ratings agencies the securities that would get rated, removing the conflict of interest entirely.

Bill That Would Gut Financial Regulatory Efforts Delayed

By: Friday November 16, 2012 9:15 am

Lest I be described as a Gloomy Gus, let’s point out some good news for a change. Or at least some potentially good news. First, the Commodity Futures Trading Commission decided to appeal a ruling from a federal judge that cancelled the Dodd-Frank regulation on position limits. By a 3-2 vote, the commission agreed to [...]

Australian Court: Standard and Poor’s Liable for Bad Ratings on Securities

By: Monday November 5, 2012 12:26 pm

This will get approximately no attention today, but a federal court in Australia ruled that Standard and Poor’s, the credit rating agency, lied to investors when they awarded their highest, triple-A rating to derivative securities that lost their value within two years of purchase. The court ruled for a series of local councils in Australia, [...]

Standard and Poor’s Report Strengthens Wall Street’s Hand in Fight Over Volcker Rule

By: Tuesday October 23, 2012 8:30 am

Standard and Poor’s estimates that the Volcker rule, due to be finalized at the end of the year, will eliminate $10 billion from bank profits annually. This is a sharp increase in the perception of the Volcker rule’s impact, and it comes before the extent of the rule is even known. “We currently estimate that [...]

Spain Continues to Resist Pressure for Bailout

By: Friday October 12, 2012 10:45 am

This refusal on the part of Spain to request a bailout, and the nasty conditions that would follow, so the European Central Bank can put its bond-buying program into motion, has really frustrated those trying to stage-manage Europe. The credit rating agency Standard and Poor’s, in league with these forces, downgraded Spanish debt to increase [...]

Moody’s Follows Other Rating Agencies Into Incoherence About Fiscal Cliff

By: Tuesday September 11, 2012 10:53 am

Good to know that the credit rating agencies have learned approximately nothing since last year. Then, they initiated a downgrade of the United States, determining that their debt would be a riskier instrument after the debacle of the debt limit deal. Investors responded by pouring money into US Treasuries and dropping the yields at one [...]

The Worst Idea in the World: Securitizing Rental Revenue

By: Sunday August 26, 2012 10:20 am

The last financial crisis can be blamed in large part on runaway securitization. Wall Street giants sliced and diced mortgage loans into bonds that they sold around the world. They claimed that they diversified the mortgage pools so that even a few defaults would not undermine the value of the securities, and they offered tranches [...]

Dimon Doesn’t Know If JPM Broke the Law in Fail Whale Trade

By: Saturday May 12, 2012 9:20 am

Visit msnbc.com for breaking news, world news, and news about the economy These quotes from Jamie Dimon’s upcoming appearance this weekend on Meet the Press are a bit out of character: David Gregory: Did the bank break any laws? Did it violate any accounting rules or SEC rules? Jamie Dimon: So we’ve had audit, legal, [...]

Fitch: Too Big to Fail Banks Still Too Big to Fail

By: Friday December 16, 2011 6:53 am

Over the past few months, the rating agencies have started to reassess the creditworthiness of US banks, based on the impression that they actually do not have an implicit bailout from the US government, because of the new laws on financial regulation, particularly the ones that give resolution authority to the government on systemically significant [...]

The Republican 99:1 Ratio on Deficit Reduction

By: Wednesday November 2, 2011 10:56 am

The Super Committee continues to meet and pretend like they’re going to come up with an end product in three weeks. We’ve learned a bit more about the Republican offer. We know that the Democrats’ plan was no great shakes, but needless to say, the Republican plan is worse, particularly in the area of revenues. [...]

Shocker: The More You Pay a Rating Agency, the More They Do Your Bidding!

By: Monday October 31, 2011 2:14 pm

Sit down for this one. Because you’re just not going to believe it. It seems that the more credit rating agencies are paid by corporations and banks to rate their debt, the more favorable ratings they hand out! This goes against everything I know about the untainted, incorruptible hand of the free market, and comes [...]

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