On Tue, 20 Jan 2015 14:42:01 -0600, F. George McDuffee
wrote:

top posted

This just in.

While the Commercial Mortgage Backed Collateralized Debt
Obligations [CMBCDO] are a minor segment of the continuing
ratings scam, at least some action was taken.

http://tinyurl.com/px4rdje
snip
Standard & Poor’s will be suspended for a year from rating
securities in the biggest piece of the commercial-mortgage
bond market in a $60 million settlement with the U.S.
Securities and Exchange Commission, according to a person
with knowledge of the matter.

The deal, which the person said may be announced as soon as
tomorrow, will be the agency’s toughest action against a
major credit rater. The SEC, which has been examining
whether the credit rater bent criteria to win business in
2011, will ban the company from grading securities backed by
multiple commercial loans, the person said.
/snip
============== top posted ============

On Sat, 10 Jan 2015 15:49:58 -0600, Frnak McKenney
wrote:

Hi, George.

Thanks for replying.

On Wed, 07 Jan 2015 14:49:29 -0600, F George McDuffee wrote:
On Wed, 07 Jan 2015 10:10:03 -0600, Frnak McKenney
wrote:

On Sat, 03 Jan 2015 11:40:26 -0600, F George McDuffee wrote:

[...]

IMNSHO it is unreasonable to expect the average, or indeed
professional, investor to conduct in-depth due dillagance on
every investment they make, to verify/validate the rating
organization valuations http://tinyurl.com/oxhw2ah. Indeed,
in many cases the securities broker/financial advisor was
the advisor who suggested an investment in ABS [asset backed
securities -- CDOs], CDS [credit default swaps] or interest
rate swaps, based on *THEIR* understanding AT THE TIME.

Which sort of begs the question, "Who will rate the ratings agencies?"

Is there some sort of qualifying exam for becoming a Recognized Ratings
Organization?

Jes' curious...


Frank McKenney
--

http://tinyurl.com/2e7b5hs
snip
"Credit rating is a highly concentrated industry, with the
two largest CRAs -- Moody's Investors Service and Standard &
Poor's (S&P) -- controlling 80% of the global market share, and
the "Big Three" credit rating agencies -- Moody's, S&P, and
Fitch Ratings -- controlling approximately 95% of the ratings
business."
/snip

Ah. So *I* could start a blog that assigned ratings to securities. It
might be completely ignored, and, even if it was read and my ratings
accepted as having some semblance of accuracy by assorted parties, my
ratings wouldn't automatically qualify as "U.S. Gummint-Recognized
Rating"... but I could do it.

( The financial industry will, no doubt, rest easier on learning that I
have no intention of doing this. grin! )

http://tinyurl.com/3h6ymd7
snip
"Originally, the SEC did not adopt specific standards for
determining which credit rating agencies were "nationally
recognized", and instead addressed the question on a
case-by-case basis.[23] NRSRO recognition was granted by the

Okay. "Nationally Recognized Statistical Rating Organization". ( Wonder
what the "Non-Statistical Rating Organizations" use... "but that, O
Best Beloved, is another story." )

SEC through a "No Action Letter" sent by the SEC staff.
Under this approach, if a CRA (or investment bank or
broker-dealer) were interested in using the ratings from a
particular CRA for regulatory purposes, the SEC staff would
research the market to determine whether ratings from that
particular CRA are widely used and considered "reliable and
credible." If the SEC staff determined that this was the
case, it would send a letter to the CRA indicating that if a
regulated entity were to rely on the CRA's ratings, the SEC
staff would not recommend enforcement action against that
entity. These "No Action Letters"...
/snip

Something like "The McKenney Financial Assessment Blog ratings do not
appear to be so far out of line as to force us to take you to court if
you use them to puff up your product"?

Let's see...

(2) Do I look like I can be easily bribed or intimidated?
(3) Can my analysts add and subtract without excessive supervision?
(4) Am I already bought?
(5) Do my rating methods involve dowsing, witchcraft, or human
sacrifice?
(6) Can my staff and I be trusted to keep our mouths shut?

Seems reasonable. ( "The SEC is visiting today; get that pentacle cleaned
up!" )

One of the greatest weaknesses appears to be the lack of any
publically available results, e. g. 10% of the bonds with a
AAA rating from the Humperdink Rating Agency within 5 years
of issuance, while only 1% of the bonds rated AAA by the
Smith Agency were.

Were... ? Sorry -- I think I lost a predicate here or something. "Were
given an AAA rating", perhaps?

FWIW: Item(5) above appears to be the weak link as the
NRSROs will not divulge their ratings methodology, so it is
impossible to evaluate their appropriateness in today's
markets. From the results and anecdotes, it appears this is
a highly subjective and idiosyncratic process, being more a
matter of taste or esthetics than facts.

Wait a minute. If the NRSROs don't have to reveal their methods, how can
the SEC say that its "No Action Letter" has evaluated these unrevealed
methods? ( Is the *SEC* using witchcraft? grin )

There is at least one non-NRSRO maverick credit rating
agency that uses the 10k and other publically available
objective/numerical data as input to a computer program that
calculates various ratios, and using the historical data
from a large number of industries/companies, calculates the
likelyhood of default. Their results appear to be much more
accurate, and as this is a "mechanical" process, if the same
data is input the same rating results, no matter who does
it.

But, since it's a "non-NRSRO" -- assuming I've got this right --
then companies can't publicly use that company's ratings to sell their
products. I'd guess that they could supply two figures -- Moody's rating
*and* CompanyX's rating -- but that would likely mean paying two fees.
What was that old line about computer hardware? "Nobody ever lost their
job by buying IBM"?

*If* you buy the argument that (e.g.) Moody's Secret Method For Financial
Divination Using Tea Leaves And Charred Report Fragments actually works,
and that divulging it would destroy the company, I can see only one route
to having the ratings agencies... er, rated: by requiring that the method
be disclosed to some group like the SEC so that group can maintain the
secrecy of (e.g.) Moody's methods yet remain independent of Moody's so
the designated group can be relied upon to perform the necessary analyses
in a disinterested fashion.

Is there another approach to this, one that wouldn't involve hours of
televised Committee meetings where ratings agencies moan and sob that
revealing the truth to the SEC would destroy the entire financial
industry?


Frank
--
A striking fact of the last two years of financial trouble is how
accountability has differed in the public and private spheres. On
Wall Street and across the country, decades-old firms have failed,
fortunes have vanished, and some former captains of finance face
jail or fines. In Washington, meanwhile, most regulators and
Members of Congress remain on the job, often with enhanced power.
-- "Bernanke's Second Chance" / Wall Street Journal 08/26/09


So much for those using Standard and Poor as an example of economic
soundness.


"At the core of liberalism is the spoiled child,
miserable, as all spoiled children are, unsatisfied,
demanding, ill-disciplined, despotic and useless.
Liberalism is a philosophy of sniveling brats."
PJ O'Rourke