The Scandal Too Few Are Discussing
You might be aware that in the United States we have what are called Nationally Recognized Statistical Rating Organizations (NRSRO’s). Under this system a small number of credit rating agencies (Moody’s, Standard & Poors and Fitch) were approved as raters of the credit risk of debt instruments. Institutional purchasers of debt, like insurance companies, banks, and general fiduciaries, are required by law to use these organizations’ ratings as a guide to their purchases. In general, such investors are required by law to only purchase debt instruments which are rated by the NRSRO’s as “investment grade”. Other’s investing in debt also rely on the NSRO’s ratings as a indication of the risk profile of their investments. [See, Nationally Recognized Statistical Rating Organizations Wikipedia entry at: http://en.wikipedia.org/wiki/Nationally_Recognized_Statistical_Rating_Organization ].
Recently, I became curious about Financial Crisis Inquiry Commission (FCIC) hearing testimony and Congressional hearing testimony on the subject of the NRSRO’s role in the housing bubble and the ensuing financial crisis. Fortunately, C-SPAN maintains a video library of such hearings, and in the video library I was able to find and watch some interesting questions and answers on the role of the NRSRO’s in the housing bubble and financial crisis.
The full hearings are a bit long, but I was able to copy a couple exchanges which I thought were interesting and characteristic of each of the two hearings from which they came. I’ve posted my brief video-clip copies on youtube. I thought you might find the video-clips interesting. The URL’s below are hyperlinked to the hearings
Too Little, Too Late (compare the dates Mr. Raymond McDaniel mentions to your bubble timeline):
The Role of The Rating Agencies (pursuing market share?):