Boy we used to really slam the rating agencies. You know Moody's, S+P, and Fitch primarily. These were the guys that gave the "good housekeeping seal of approval" (or not!) to allow people to buy all kinds of bonds over the years. When it got to the world of structured securities (the stuff with acronyms like CDO, SIV, etc), there was a bit of a problem.
See the rating agencies really had no idea how to rate this stuff so they got "ratings models" from the Wall Street firms. The Wall Street firms would teach the agencies how the models worked. They'd then make bonds that the rating agencies would rate using these models. They'd PAY the rating agencies for these ratings. The Wall Street firms would then sell the bonds based on these ratings and scoop up some nice fees. Reread this paragraph again.
We as Wall Street firms would go into meetings, sometimes called road shows, where we would try and sell the bonds. It became a running joke that if we were in Europe/Asia and we were trying to sell AAA bonds (the supposed highest, safest rated bonds by the agencies), that as long as no one whipped out a deadly weapon and threatened to kill the customers we could sell the bonds. Because these guys all over the world, treated the AAA rating like a sign from God. As in, THESE ARE SAFE AS CAN BE. GO RIGHT AHEAD AND BUY AS MUCH AS YOU WANT.
Well, you know what happened after that. Everything went pear shaped (technical term). Then we made a lot of fun out of the disclaimer that the rating agencies all had. Which basically said, "if you buy ANYTHING based on what we say, you are a buffoon." We kinda stopped writing about them when all the lawsuits from everyone and their cousins started trickling in, figuring like "Fat Pete" Clemenza said to Sonny Corleone in Godfather I, "Oh Paulie? You wont see him no maw." We figured they were cooked.
But then I get an article sent to me today from the NY Times (I still don't read that paper) by David Segal, "Debt Raters Avoid Overhaul After Crisis". Talk about low hanging fruit to write about again! You can read the article but basically it says congress is doing NADA to stop these guys. What is also great is that hedge funds are sniffing around to buy the stock of these rating agencies if they aren't going to be drummed out of business because that means they will just make a huge fortune again!
As a first glance, I'm not even going to blame Congress or Wall Street or even the rating agencies for this colassal assclownery. I'm going to blame the potential buyers of the bonds that are rated. Just like I talked about a few weeks ago with the Dubai World thing, if you want to buy these bonds, assclowns, you get EVERYTHING you deserve.
Now I have to go. The President is speaking about the economy and the deficit with his Budget Director. This will be high comedy.
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