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Where’s Harry When We Really Need Him?!

Posted by Larry Doyle on April 15, 2009 2:39 PM |

The ratings process for the securities industry has been an absolute joke. With all due respect to those who work at the rating agencies, the business model and massive conflicts of interest have been an unmitigated disaster. 

Where were the authorities with the vision to throw on the flashing yellow light in the midst of the storm? Well, we can all take comfort that the SEC has been working on reviewing the rating agencies model since late 2006 and has made 5 rulings. Over and above that, Ms. Schapiro shares with us that the SEC has undertaken further studies over the last ten months.  2006? Ten months? When the need for dynamic movements is never greater, our government continues to move at a snail’s pace. 

Let’s listen to Ms. Mary Schapiro, current head of the SEC. It’s a long clip (approximately 55 minutes), but you can fast forward along the way at any time. CSPAN did not provide an embed code for this clip, but by clicking on the image below you will be brought directly to the CSPAN site and the video will begin playing.

sec-credit-rating-roundtable

As I listen to Ms. Schapiro pontificate about the concepts of aligning interests, business models, users of ratings, conflicts, multiple ratings, and ending reliance on ratings agencies, I have one very clear cut image piercing through my mind.

That image is of Harry Markopolos providing chilling Congressional testimony this past January on the failures of the SEC in handling the Madoff scam. I learned more about the SEC in Harry’s testimony than I had over the course of my entire career on Wall Street. 

Couldn’t we use a guy like Harry running the SEC right now? 

LD

  • fiscalliberal

    I started listening to Schapiro and decided to review tonight. I find her as condesending as Neil Kashkarian is. However I am reminded about the software model used by Fitch as reviewed in a paper I flagged to you. They went to Fitch and asked them how the model used historical information. They said it used CDS spreads for the last 8 years. They then asked Fitch how the model would work if housing prices leveled off. They said not to well. They were then asked how the model would work if housing prices declined. Fitch said the model would blow up.

    So – in the end they were complicent in providing bogus AAA ratings.

    Do you know that the official SEC ratings agencies are a oligopoly of three. One of the recommendations made to a House Hearing was to expand it to include two other ratings companies who predicted the demise of Enron and the housing crisis. I think SEC is still studying it.

    To date, I think yours is the only blog pointing out the conflict of interest Shapiro had while head of FINRA regarding ARS.






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