Friday, April 23, 2010

$GS #GS Another Goldman Article on Credit Rating of CDOs being juiced with Green Paper

WASHINGTON -- A cache of new documents from a congressional inquiry shows the tense relationship between credit-ratings firms and Goldman Sachs Group Inc. as they structured risky deals like the one featured in the recent fraud allegations against the investment bank.

Such debates between credit raters and issuing companies are commonplace.

The newly released internal emails and other communications depict Goldman bankers tussling with analysts at Standard & Poor's and Moody's Corp. over the process of rating mortgage-backed securities.

The Senate documents, which were released ahead of a Senate Permanent Subcommittee on Investigations hearing Friday, include the Abacus series of securities deals, one of which led the Securities and Exchange Commission to charge the firm and one of its bankers with misleading investors.

"I am getting serious pushback from Goldman on a deal that they want to go to market with today," notes one Moody's analyst in an April 2006 email. The analyst was being asked by Goldman to give more favorable terms than the ratings firm was offering. In another email dated May 2006, an S&P analyst talked openly about a weakness in the Abacus deal, though it couldn't be determined what that shortcoming was. "It was a known flaw not only in that particular Abacus trade, but in pretty much all Abacus trades . . . ." S&P is a unit of McGraw-Hill Cos.

Critics of the ratings firms say their ratings helped contribute to a bubble in the housing market and the financial crisis that followed by giving shaky mortgage securities their highest credit ratings.
Erosion in the raters' internal rating standards occurred as the complexity of mortgage-related securities was growing -- along with the revenues available to the ratings firms from the exotic deals, the committee said. The committee says that overall revenues of the three major ratings firms grew from less than $3 billion in 2002 to more than $6 billion in 2007, fueled by the growth in high-yielding subprime-mortgage securities.

The Senate Permanent Subcommittee on Investigations says the ratings increasingly were affected by "gaining market share and revenues and pleasing investment bankers bringing business to the firm."

A spokesman for Goldman declined to comment. Moody's spokesman Michael Adler said his firm "is committed to delivering the highest quality opinions about the securities we rate." He added: "We look forward to the opportunity to provide the committee with our perspective." S&P couldn't be reached for comment.

  Emails show that some people within the ratings firms were becoming concerned with potential fallout. One internal email from S& P in June 2005 warns that "Screwing with criteria to 'get the deal' is putting the entire S&P franchise at risk -- it's a bad idea." Another from August 2006 says raters have "become so beholden to their top issuers for revenue they have all developed a kind of Stockholm syndrome which they mistakenly tag as Customer Value creation."

  Yet even as the subprime mortgage market was in full collapse in late 2007, Moody's officials still were focused on maintaining their large market shares for various classes of securities, while continuing to push mortgage securities through the approval process, the documents show. In one email, in October 2007, a Moody's manager notes that mortgage-securities market share by deal count dropped; "Any reason for concern, are issuers being more selective to control costs (is Fitch cheaper?) or is it an aberration.)."

The committee plans a hearing on Friday that will feature a range of witnesses, including top executives of the rating firms. The subcommittee chairman, Sen. Carl Levin (D., Mich.), said he hopes that the hearings will provide momentum for a financial overhaul bill that is inching its way through the Senate.

Another S&P email regarding one Abacus deal says, "not only have these trades consumed tons of my time, but they have generated an enormous amount of stress since I'm the one that has to break the news that these trades are wrong . . . which makes us look like idiots."

Investigators concluded that the email refers to erroneous ratings.  this link will work for two days LINK

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