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October 22, 2008

Credit Rating Agencies, Cows, etc.

Some quick excerpts from documents obtained by the House Oversight Committee and presented today:

In one document, an S&P employee in the structured finance division writes: “It could be structured by cows and we would rate it.” In another, an employee asserts: “Rating agencies continue to create [an] even bigger monster — the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.” {Emphasis added]

And another:

In 2001, Mr. Raiter [of S&P] was asked to rate an early collateralized debt obligation called “Pinstripe.” He asked for the “collateral tapes” so he could assess the creditworthiness of the home loans backing the CDO. This is the response he got from Richard Gugliada, the managing director: "Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. Nevertheless we MUST produce a credit estimate. … It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so."

Mr. Raiter was stunned. He was being directed to rate Pinstripe without access to essential credit data. He e-mailed back: “This is the most amazing memo I have ever received in my business career.” [Emphasis added]

Much more here.

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