Conversation of the Day – 10.23.2008

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CONVERSATION OF THE DAY….Between Rahul Dilip Shah and Shannon Mooney, a pair of analysts at the credit rating agency Standard & Poor’s, chatting via IM back in 2007:

RDS: btw: that deal is ridiculous

SM: I know right … model def does not capture half of the risk

RDS: we should not be rating it

SM: we rate every deal

SM: it could be structured by cows and we would rate it

This was made public as part of a House committee hearing today. The New York Times reports on other revelations:

Among the documents uncovered by the committee was an internal board presentation delivered by [Raymond] McDaniel to Moody’s directors in October 2007. According to the presentation, he told his board: Analysts and managing directors “are continually ‘pitched’ by bankers, issuers, investors.” At times, he conceded, “we drink the Kool-Aid.”

….Mr. Waxman’s committee also cited an internal e-mail exchange between [Frank] Raiter, who had been asked to rate a collateralized debt obligation called “Pinstripe,” and Richard Gugliada, an S.& P. managing director. Mr. Raiter had requested highly detailed data about each individual loan, known as loan level tapes, to assess the creditworthiness of the loans in the security, but Mr. Gugliada wrote: “Any request for loan level tapes is totally unreasonable!!! It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.”

Mr. Raiter responded: “This is the most amazing memo I have ever received in my business career.”

Kinda reminds you of all those Enron emails and phone conversations gloating over how they’d created the California energy “crisis,” doesn’t it. Good times.

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