Ratings Agencies Were Wall Street Cat's Paws; and Wall Street Is Next

April 24, 2010 (LPAC) — The third of four hearings on "Wall Street and the Financial Crisis" held by Sen. Carl Levin's Senate Permanent Investigations Subcommittee, today went after the pathetic rating agencies, who aided those blowing up the debt bubble by forever giving "AAA" a bad name. Some 90-95% of all the residential MBS, and CDO derivatives based on them, which were rated "AAA" by Moody's, Fitch, and Standard and Whores, are now junk bonds.

A report released by Levin's committee on the eve of the hearings makes clear why: "The credit rating agencies allowed Wall St. to impact their analysis, their independence, and their reputation for reliability." They were bought. In 2007, a Moody's analyst told a Merrill Lynch investment banker that a rating could not be finalized until the "fee issue" was resolved. The banker responded, "We are OK with the revised [i.e., increased] fee schedule.... We are agreeing to this under the assumption ... you will work with us further ... to try to get some middle ground with respect to the ratings." And so another bunch of pieces of toxic debt became "AAA" along with hundreds of thousands of others.

The hearing today also established, by testimony of Moody's and S&P credit analysts, that their bonus pay depended on those ratings, and on the "market share" that ratings agencies gained by doling out the "AAA's". The ratings agencies themselves made high profits during the 2003-2007 bubble boom years, which they did not use to hire more analysts to cope with the flood of toxic crap being issued, but rather distributed as dividends.

In other words, the ratings that your pension fund relied on to invest your future benefits, were bought and paid for by Wall Street investment banks.

Most interesting, however, were Levin's closing remarks at today's hearing. He announced that having held inquisitions into the mortgage fraud, then the regulatory agencies which allowed it to pour ahead undisturbed, and now Wall Street's favorite ratings agencies, on April 27 his target will be Wall Street investment banks themselves, and in particular Goldman Sachs. "It was NOT a 'market maker' which had to go short and long," Levin said, "It was a conspirator in creating this huge bubble which crashed on us." He said that he was placing "four documents bearing on this role of Goldman Sachs" into today's hearing record in preparation, and that the committee would post those documents on its website either Friday night or Saturday morning.

This should make interesting weekend reading for Goldman Sucks chairman Lloyd Blankfein, who will be on the stand Tuesday