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In response to
"ST poll -- Today's Congressional hearings with Goldman Sachs -- justified or witch hunt? -- nm"
by
Fuzzy
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I don't know if Congressional hearings are going to do any good but Goldman is crooked... problem is this whole thing has a misguided focus
Posted by
stewie (aka whysoserious)
Apr 27 '10, 06:16
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All you hear about is how Goldman was betting against their clients, and the mortgage market. That wasn't the crime. That isn't a crime.
The real issue is that these securities got A ratings. If they were rated correctly as toxic, there would have been no short market because nobody would have been going long on them. So how'd that happen?
1.) The ratings agencies are for profit businesses that have incentives to rate a lot of stuff, not piss off their biggest clients by fairly telling them that their new security is an overly complicated scam.
2.) The Wall Street big shots knew the formulas the ratings agencies were using to rate the mortgage backed stuff, and they exploited it. They knew that the average credit score of the mortgage holders was all that mattered. There was no minimum credit rating. So they could package mortgages that were sure to default if they were properly offset by a mortgage with an above average score. So now the mortgage pool can be 50% toxic, enough by itself to make the whole thing a certain timebomb. But they went a step further, because it was too hard to find the good credit scores to offset the bad. They started going after "thin credit" borrowers, people with high credit scores but based on virtually no credit history. This made no difference to the ratings. That's the logic behind the crazy ass stories of people that made $30,000 a year getting $750,000 loans.
Have you ever heard anyone question the ratings agencies on this? I haven't in the mainstream news.
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