“But I’ve heard from more than a few market participants, the kinds of in-the-trenches people that would never get permission from their employer to see their name in print, that the opaque ratings models used by the big three — a “competitive advantage” that all three firms work hard to protect, hence the opacity — also allow the agencies to cover up for models that have some very rudimentary failings in modeling techniques.
The risk factors discussed above would appear to be one example of this, and while it’s good to see Fitch now making an attempt to correct for this, the move to include the variables into the model now is really no different than closing the barn door after the animals have long since run out of their stalls.
And it’s only one example of how ratings models missed clear risk factors that might have forced greater credit enhancement, but might have also protected investors to a larger degree: Fitch said its Resilogic 2.0 model will up penalties for loans written in no-doc or low-doc scenarios, as well as for loans with a piggyback second lien at origination.”
So, competitive factors, aka free market, complete failure for common investor, but not for insiders at every related firm. But once again, its others people’s money, why the bleep does anyone in industry care, its not their money and they cant get fired for being average.
Well, maybe GimmeCredit has some credibility since it is indepedent. It issued warning on WaMu today and it went down another 4%.
