INVESTIGATION: Cuomo Issues Subpoenas To 8 Wall Street Banks -- Did They Lie To Get AAA Ratings For CDOs?
Too early to say, but it sounds like Cuomo has finally begun to listen to Eliot Spitzer, who has been making this case in the media for months. Was there a pattern of lying and providing misleading data to credit rating agencies by the investment banks? Subpoenas were issued last night, so it's likely the shredding of documents has begun.
What? Me, cynical?
Watch Spitzer & Ratigan explain the FRAUD (Classic Clip) >>
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Now to back up, there's no good excuse for the buyer of any debt to rely solely on ratings agency scores in buying decisions. If you bought into some CDOs without doing your own research merely because Moody's had slapped it with a AAA rating, you're a fool and you deserved to lose a lot of money.
That being said, this issue isn't nothing, because if there's a clear pattern of providing improper data to the raters -- and again, this is just an early-stage investigation -- then the banks begin to look like they were specifically trying to deceive customers on behalf of their own trading desks or special clients (like John Paulson).
Suddenly, this looks less like hedging or market making, and more like putting your finger on the scale.
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The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities, according to two people with knowledge of the investigation.
The investigation parallels federal inquiries into the business practices of a broad range of financial companies in the years before the collapse of the housing market.
Where those investigations have focused on interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.
The agencies themselves have been widely criticized for overstating the quality of many mortgage securities that ended up losing money once the housing market collapsed. The inquiry by the attorney general of New York, , suggests that he thinks the agencies may have been duped by one or more of the targets of his investigation.
Those targets are , , , , Credit Suisse, , Crédit Agricole and , which is now owned by .
The companies that rated the mortgage deals are , and . Investors used their ratings to decide whether to buy mortgage securities.
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Continue reading at the NYT >>
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Background reading:
Rating Agency Data Aided Wall Street in Deals (Gretchen Morgenson)
May 13, 2010 at 12:26 PM
Reader Comments (2)
http://www.nytimes.com/2010/05/13/business/13street.html?ref=business
Rating Agency Data Aided Wall Street in Deals