[ExI] AIG Bail out

[John K Clark]

As much as I'd like point at government as the only cause of this
economic mess I cannot in all honesty do so. I place a very large
part of the blame on rating agencies like Moody's and
Standard & Poor.

The banks liked to lump several thousand mortgages together 
into one financial instrument, they then paid these agencies to 
rate them. If they were rated high the instrument was worth
more than the sum of its parts and the bank made money. 
That seems like a conflict of interest to me.

Even today few of these repackaged load instruments have 
been analyzed in any detail. One of the few that has been 
consisted of about 2,400 mortgages with a face value of $430 
million.  Moody's gave it the highest credit rating even though 
it had NONE of the individual loan files, and it did nothing to
verify any of the information the lenders provided. It later
turned out that 43% provided no written proof of their income. 
None.

No need to examine every mortgage, if they just picked 10 
at random out of the 2400 they would have found about 4 that
were of this sleazy nature, but they didn't do that, they 
couldn't be bothered. "We aren't load officers" they sniffed.
Instead Moody's just assumed everything the bank told them
was true. If any company deserves to go belly up it's Moody's.

Like everything else Capitalism has its excesses and this is
certainly one of them.

 John K Clark