09-08-2014, 11:25 AM
Tell me what I want to hear
There is a facetious joke among accountants that goes like this. A new accounting grad goes in for an interview and the partner at the accounting firm holds up a number. When asked what number is printed on the card, the new grad reads “7.” The partner says, “Thank you, we’ll get back to you.”
A second accounting grad comes in for the interview and the partner again hold up a number. Again, the grad reads “7.” The partner says, “thank you, we’ll get back to you.”
Finally, a third accounting grad comes in for the interview and the partner again holds up a number. This time the grad says, ”What number do you want to it to be?” The partner says, “thank you, you’re hired.”
The financial marketers could also shop around and have the ratings agencies compete until the marketer eventually found a rating agency that would allow the investment house to bundle as many high risk BBB mortgages as possible in the AAA package without sacrificing the overall AAA rating.
The big three ratings agencies doubled their income from 2005 to 2007 by tagging these new ratings on new Collateralized Debt Obligations and Mortgage-Backed Securities. The market purchased some 5 trillion of these instruments through banks, mutual funds, hedge funds and pensions, and the presidents of the big three ratings agencies collectively earned $80 million from 2002 to 2008.
There is a facetious joke among accountants that goes like this. A new accounting grad goes in for an interview and the partner at the accounting firm holds up a number. When asked what number is printed on the card, the new grad reads “7.” The partner says, “Thank you, we’ll get back to you.”
A second accounting grad comes in for the interview and the partner again hold up a number. Again, the grad reads “7.” The partner says, “thank you, we’ll get back to you.”
Finally, a third accounting grad comes in for the interview and the partner again holds up a number. This time the grad says, ”What number do you want to it to be?” The partner says, “thank you, you’re hired.”
The financial marketers could also shop around and have the ratings agencies compete until the marketer eventually found a rating agency that would allow the investment house to bundle as many high risk BBB mortgages as possible in the AAA package without sacrificing the overall AAA rating.
The big three ratings agencies doubled their income from 2005 to 2007 by tagging these new ratings on new Collateralized Debt Obligations and Mortgage-Backed Securities. The market purchased some 5 trillion of these instruments through banks, mutual funds, hedge funds and pensions, and the presidents of the big three ratings agencies collectively earned $80 million from 2002 to 2008.
