State pension funds are supposed to invest in safe assets. Indeed, the law even requires them to buy up only "investment grade" securities. I.e., those assets rated AAA to B- by ratings agencies. This was supposed to make up for the fact that all of them got privatized and therefore people didn't have their retirement income funded directly by the government.
And they did what they were supposed to do. With gusto. They bought all those AAA-rated toxic mortgage backed assets.
Unfortunately, Moody's and S&P slapped this pristine AAA wrapping on all cowpaddie mortgage derivatives. Why, why, oh why would they do this?
Among Mr. Clarkson’s [former Moody's exec] duties: make nice with Wall Street. Some banks and debt issuers in the 1990s regarded Moody’s as uncooperative, even rude, which led firms to seek ratings elsewhere.
“From the day that I started at Moody’s, Moody’s was deeply concerned about the relevance they had in the marketplace,” he said in his private testimony with commission examiners. “A rating agency may have a methodology that is superior. But if they’re not assigning any ratings, they don’t have any relevance in the marketplace.”
Okay. So credit ratings agencies gave big warm bear hugs to spinoff entities birthed by Bear Stearns that contained nothing but toxic assets. Even if Bear Stearns was actually betting against those assets. So they could stay "relevant."
And here's another question. Why, why, oh why do our regulations force our reliance on these private ratings agencies by requiring our pension funds to rely upon their ratings?
And, lastly, why oh why are credit ratings agencies immune from lawsuits over the crappyness of their ratings? (according to our courts, such ratings, as mere "opinions," can't serve the basis for claims for fraud and misreprentation against the agencies that give them.
Of course, at the same time, the bankers themselves hide behind the ratings to shield themselves from liability. Their argument goes like this: they couldn't have committed fraud in selling these crap securities while telling everyone they were safe -- Moody's, after all, gave those securities AAA ratings. It was just a big mix up. No criminal intent here.
So who gets stuck with the bill for all this? The union pension funds, of course. Which are so broke that state governors like Walker are using it as an excuse to bust the unions in the first place.
And, lastly, why oh why are credit ratings agencies immune from lawsuits over the crappyness of their ratings? (according to our courts, such ratings, as mere "opinions," can't serve the basis for claims for fraud and misreprentation against the agencies that give them.
Of course, at the same time, the bankers themselves hide behind the ratings to shield themselves from liability. Their argument goes like this: they couldn't have committed fraud in selling these crap securities while telling everyone they were safe -- Moody's, after all, gave those securities AAA ratings. It was just a big mix up. No criminal intent here.
So who gets stuck with the bill for all this? The union pension funds, of course. Which are so broke that state governors like Walker are using it as an excuse to bust the unions in the first place.
