THE RATINGS AGENCIES ARE CULPABLE

One pillar of capitalism is trust and right now there are a lot of players who don't trust the major ratings agencies: Moody's Investors Service, S&P and Fitch Ratings. Bloomberg has a series on the sub-prime mess and these are excerpts from the one on the ratings agencies, "Rating Subprime Investment Grade Made `Joke' of Credit Experts." Last July 10, S&P had a conference call about downgrading some of the Big ShitPile:

``I'd like to understand why now, when you could have made this move many, many months ago,'' said Steven Eisman, 45, who manages the $1.5 billion FrontPoint Financial Services hedge fund for Morgan Stanley in Greenwich, Connecticut. ``The paper just deteriorates every single month.''

Warrack and Managing Director Susan Barnes, 42, explained S&P's view of the time needed to accurately judge the performance of securities. Eisman cut them off. ``You need to have a better answer,'' he said.

A lot of people wonder why the agencies waited so long when there were signs that this could've been a problem as far back as early 2004. ere's a rough idea of the size of the problem, excluding any leverage:

Investment banks including Bear Stearns Cos., Deutsche Bank AG and Lehman Brothers Holdings Inc. sold $1.2 trillion of these securities in 2005 and 2006, said Brian Bethune, director of financial economics for Global Insight Inc. in Waltham, Massachusetts....About 80 percent of the securities carried AAA ratings, the same designation given to U.S. Treasury bonds.

That's about 960 BILLION of junk. I knew the agencies were well-paid to rate this crap, I didn't know they colluded with the issuers to get the highly desirable AAA-rating:

Issuers got guidance from rating companies on how to shape their subprime securities to win the ratings, says Joshua Rosner, managing director of the New York-based research firm Graham Fisher & Co. Investment banks used software distributed by the ratings companies to show them how to meet the requirements, then paid the companies to have the securities rated, he says.

``The idea that the rating agencies are impartial in the world of structured finance is a joke,'' Rosner says. ``The issuers use the publicly available model to structure a pool and then sit down with the rating agencies to fine-tune it until they reach the desired rating.''

This isn't much solace, but at least one person was fired:

S&P's president, Kathleen Corbet, resigned in August after lawmakers and investors criticized the company for failing to judge the risks of subprime securities.