Thursday, September 27, 2007

Are They Really This Stupid?

"'We've never seen anything like it in structured finance,' says Paul Kerlogue, senior credit officer at Moody's in London. 'Things just behaved in a way that we were not able to predict'. Says S&P's statement: 'Our original ratings were based on the best available data at the time.' It adds that the credit quality of the CDOs' underlying investments is still strong. ... 'They were looking at historical data in a brand new ball game with brand new products,' says Janet Tavakoli, president of Tavakoli Structured Finance Inc., a Chicago-based consulting firm and a longtime critic of the agencies. 'You have to understand what you're modeling. That is Statistics 101, and they failed.' S&P and Moody's say they did significant stress testing on their models to account for the risk", BusinessWeek, 1 October.

This is absurd! The rating agencies had no business rating CDOs, etc., These products were created for " gaming the regulators", Economist, 20 September. Amen. Three cheers for Tavakoli! Again, where were the CPAs? The CPA firms had no business opining on any entity that issued or held these products. Did they learn nothing from Enron?

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