The Housing Crisis

The more I read about the housing crisis and the eventual collapse of the financial markets, the less faith I have in our masters of the universe.

The newest bits of my reading are around the failure of the credit rating agencies like Moodys and S&P to assess risk because of market pressures. First read this.

Then read the documents from the recent hearing on credit agencies from the Committee on Oversight and Government Reform.

There’s a lot of great stuff in there, but I’d encourage you to read the Moody’s town hall transcript somewhere near the end to see how they passed the buck and tried to minimize their role in the market collapse. Read up in Frank Raiter’s testimony about how S&P had better models for rating that simply weren’t used because they wouldn’t make them more money. Read up on how Moody’s CEO explains that models aren’t everything, and really it’s a bunch of smart people making guesses. Also consider the testimony of Jerome Fons who talks about how Moody’s was rating subprime financial instruments on basically no information.

As Jerome points out, current rating agencies have a huge conflict of interest and consider debt issuers rather than investors as their customers.

I don’t know why I keep reading about this stuff. It’s just going to make my blood pressure go up.

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