But many of those triple-A rated securities have since been downgraded. In all, Standard & Poor's has downgraded $1.25 trillion out of $3.22 trillion in housing-related securities issued between the first quarter of 2005 and the third quarter of 2007. About 66% of those securities originally rated investment-grade have been downgraded to junk-bond status.
"The ratings agencies have caused us problems at both ends of this -- by not spending enough time in their due diligence, and also by overreacting once the credit problems have happened," says Tom Brown, head of financial services hedge fund Second Curve Capital.
Though the ratings agencies held themselves up as independent arbiters of credit quality, it appears they actually just pimped themselves out to the issuers, who paid them for their ratings. As The New York Times reported in December, when Countrywide Financial complained to Moody's that it didn't like a rating on a security it issued, Moody's changed it a day later without any new information coming to light. A Moody's spokesman denies the agency has ever done this, the Times reported.When they weren't being pushovers, they were being incompetent. As the Financial Times reported last year, a computer glitch caused Moody's to incorrectly give a triple-A rating to billions of dollars of securities called constant proportion debt obligations. And then, when Moody's found out about the glitch, their methodology had conveniently changed, to allow these ratings to stay in place.
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