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Credit-Rating Firms Grilled Over Conflicts
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"Profits were running the show," he said.
Sharma said that the model was not adopted because Raiter's colleagues thought it was not effective and that models have been repeatedly updated since Raiter left the company in 2005.
Raiter also clashed with colleagues at Standard & Poor's when he was asked to rate a security by Richard Gugliada, an S&P managing director. After Raiter asked for detailed loan information to assess the creditworthiness of the security, Gugliada refused.
"Any request for loan level tapes is TOTALLY UNREASONABLE!!!" Gugliada wrote in 2001. "It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so."
Raiter responded: "This is the most amazing memo I have ever received in my business career." He told the lawmakers that he never rated the security.
Gugliada said in an interview that he was following company policy and that Raiter's department was the only one that refused to provide ratings without the detailed data.
Other internal documents suggested that analysts knew they were overrating the securities. In an April 2007 instant-message exchange between two S&P analysts, one wrote, "that deal is ridiculous."
"i know right . . . model def does not capture half of the . . . risk," responded the other.
"we should not be rating it," the first replied.
"we rate every deal," the second wrote. "it could be structured by cows and we would rate it."
Standard & Poor's said the deal discussed by the employees was later restructured and then rated by the firm. The company said the rating has held up and that the exchange did not reflect the firm's professional standards.
One high-ranking executive at Moody's expressed concern about the morality of its policies in September 2007. "We had blinders on and never questioned the information we were given," the unnamed managing director said. "These errors make us look either incompetent at credit analysis, or like we sold our soul to the devil for revenue, or a little bit of both."
Other credit-raters took a more whimsical tone in describing the risks of mortgage-backed securities. "Let's hope we are all wealthy and retired by the time this house of cards falters," a high-ranking official at Standard and Poor's wrote in December 2006.
The sentence concludes with a smiley face.
Staff researchers Madonna A. Lebling and Lucy Shackelford contributed to this report.
