Could the investors and banks sue the ratings agencies for getting it so wrong?

A lot of dodgy mortgage products were rated AAA by Moody’s and the rest, which subsequently went bad. Is there any possible comeback on these firms for not doing their job properly (even though they probably have got much in the way of assets take anyway?).

Maybe the government should get into the ratings game and put them out of business.

I think any real change will come from the investor side. Now that their trust in the ratings has been shattered, they’ll come up with their own way of rating these assets and put the ratings agencies out of business the free market way.

In general they throw disclaimers at you… so nope, unless you can get them on some sort of common law thing like fraud or super duper gross negligence. Which you won’t be able to.

By the way a lot of the stupider ratings were caused by bugs in computer programs. Or so they claim; the real reason was that ratings are inherently fricking stupid.


Here’s one. Won’t bother finding more cites because I’m lazy. S&P had similar problems and by the way what came out in public is the tips of the iceberg, according to various drunks.

Please don’t misread this as saying computer bugs were the main driver, they weren’t. Fuckwit quants and their silly models were the main problem behind stupid ratings. But more to blame are morons who relied on ratings.

Thank you for the cite. I hadn’t heard that. I still see no evidence that “a lot” of the ratings were caused by bugs, however.

After doing some reading on the subject, the thought that came to mind was that past performance is no guarantee of future performance. Some of the mortgage products sounded very dodgy, like NINA (no income no assets) loans, but the default rates were unexpectedly low. So one could argue that, at that point in time, they were relatively safe. Rising real estate prices and low interest rates helped hide the true risk of the marginal quality loans. It was only when circumstances changed that the default rates increased to “toxic” levels.

The underlying asset might have the value of a dog turd, but if it is ‘guaranteed’/‘insured’ by a respectable institution, it then takes on the rating of that institution.

It was the guarantors that were misrated, not the CDOs

  • this is rather like the overlending of recycled petro dollars to S. American and other dodgy borrowers that took place in the late 1970s and early 1980s.

It seems to me that they were caused by the “bug” known as “Garbage In, Garbage Out”.