From yesterday's hearing before the House Committee on Oversight and Government Reform.

[randomness]

This IM log is getting a fair amount of play in the financial blogs this morning.

Excerpted from an Instant Message Conversation between Shannon Mooney and Rahul Dilip Shah, April 5, 2007:

Administrator: This IM session is being recorded and may be reviewed for compliance by McGraw-Hill through its several divisions.

Thursday, April 05, 2007 3:58:42 pm EDT Shah, Rahul Dilip (Structured Finance - New York): btw that deal is ridiculous

Thursday, April 05, 2007 3:59:05 pm EDT Mooney, Shannon: i know right…model def does not capture half of the rish

Thursday, April 05, 2007 3:59:08 pm EDT Mooney, Shannon: risk

Thursday, April 05, 2007 3:59:09 pm EDT Shah, Rahul Dilip (Structured Finance - New York): we should not be rating it

Thursday, April 05, 2007 3:59:17 pm EDT Mooney, Shannon: we rate every deal

Thursday, April 05, 2007 3:59:30 pm EDT Mooney, Shannon: it could be structured by cows and we would rate it

Thursday, April 05, 2007 3:59:54 pm EDT Shah, Rahul Dilip (Structured Finance - New York): but there’s a lot of risk associated with it - I personally don’t feel comfy signing off as a committee member.

To quote the Financial Times:

On Wednesday, the House Oversight Committee of the US Congress held a hearing on the rating agencies. And it released some explosive material - the implications of which don’t yet seem to have quite sunk in. The evidence presented is extremely damning.

While everyone is focusing on the “rated by cows” quote, the important part in this exchange is actually in the final message: the analysts were clearly uncomfortable, but felt there was nothing they could do. The story is similar at Moody’s, where members of the CPDO rating committee, for example, were perfectly aware of grave flaws in the rating model, but felt there was nothing that could - or should - be done.

Why?

Conjecture and more excerpts in the full post.

Comments

[drwex]

This is some seriously scary stuff. Thanks for posting these things.

[digitalemur.livejournal.com]

Oh, SEC-compliant-IM-logs. How we love you.

McGraw-Hill?

[ddreslough.livejournal.com]

Don't they make textbooks? I'm so confused...

Re: McGraw-Hill?

[r-ness.livejournal.com]

Yah, I thought that was odd at first too until I checked and discovered that Standard & Poors (as in S&P 500 index) is a division of McGraw-Hill.

http://www.mcgraw-hill.com/fin/default.shtml

[xse99.livejournal.com]

Whoa boy.