Credit Suisse Money Market Fund

By Shah Gilani
Editor
Money Morning

Behind the credit crisis gripping U.S. and world economies is a crisis of confidence. Blame has been laid at the feet of the U.S. Federal Reserve, and an infusion of investment banks' toxic substances financial products. Ultimately, however, it was the rating agencies supposedly trustworthy who got everyone to drink the poison Kool-Aid.

The greed and outright fraud analysts and executives of credit rating agencies is staggering. This person has gone to prison, and none of the agencies have been closed is a travesty of justice on a scale far greater than Bernie Madoff Ponzi scheme. Until the depositors, bankers and investors regain confidence in the quality of ratings, we rely on measuring the financial stability and solvency, the shocks that underlie the credit crisis will last forever.

Letter numbers and ratings - such as AAA, Aa1, BBB, Caa1 - are shortcuts to financial due diligence supposedly done by the rating agencies after they have reviewed an issuer or financial structure of a title, and assessed the likelihood of his being able to pay interest and principal at maturity. Investors rely on the objectivity and fiduciary responsibility of rating agencies to publish fair and accurate assessment without compromise.

By law, some investors must rely on assessments of a handful of the Securities and Exchange Commission designated Nationally Recognized Statistical Rating Organizations "(NRSROs). For example, most state insurance regulators, the only assets recorded in the categories top four ratings by NRSROs are qualified investments. Similarly, money market funds may invest in securities highest NRSRO. In fact, countless institutions - public and private, national and international - levels mandated quality asset based on the diligence of the main rating agencies, "because.

Rating agency Standard & Poor's, Moody's Investors Service (MCO) and Fitch Ratings Inc. are all appointed by NRSROs SEC. They are the biggest, the best known and most profitable businesses in smaller dimensions, Universe $ 5 billion a year business ratings. S & P is part of McGraw-Hill Cos INC (MHP), while Fitch is a subsidiary of Fimalac SA of France.

Moody's is following the financial publisher Dun & Bradstreet Corp. (DNB) as a public company in 2000. Warren Buffett's Berkshire Hathaway Inc. (BRK.A, BRK.B), apparently having found a rough diamond, bought the D & B before the transfer, and finished with a 19% wholesale Moody's after the spin-off has been completed.

The problem with the business of rating securities issuers, and the classification of securities they issue - such as mortgage-backed securities and bonds secured by mortgages - is that the rating agencies are paid by issuers for rates. Objectivity aside, ratings companies are in business not to rate, but make money for themselves by issuers and rating their securities. It is as if all the competitors in the Miss World judges who pays with funds from countries ... which will not be considered beautiful?

What was even more problematic in the scheme of the business model has been ratings that analysts do not understand how to analyze and evaluate very complex structures of cash flows of these new guaranteed securities backed by mortgages. Not wanting to lose customers to competitors, who were all in the same boat, they used the same structure evaluation model they have used to rate corporate bonds, if the two accounts is nothing common.

It was like asking your local car mechanic to certify your Citation V jet - just before taking off for a transatlantic flight to London. May God help you if th.