Ratings agencies about to get downgraded to Triple-F

The monster pension fund, California Public Employees’ Retirement System (CALPERS), has decided that the major ratings agencies need to be held accountable for nearly $1 billion in losses that the fund has incurred.

CalPERS said the "top" ratings on highly structured investment vehicles and complex packages of securities including subprime mortgages did not properly reflect the risk of these investments.

The suit said the AAA ratings given by the agencies "proved to be wildly inaccurate and unreasonably high", according to Reuters.

And what does CALPERS hope to accomplish here? Barry Ritholz has a theory.

Calpers doesn’t give a rat’s ass about the money...[t]he losses to Calpers are ~!$1 billion.

But that’s not what’s going on here: These Left Coasters want their pound of flesh. They don’t care for the Ratings Agency folks, and consider them a blight on the investment landscape.

The goal of the litigation (as I see it)...is to publicly try them just as the regulatory rules are being rewritten. I also predict that CALPERS is going to attempt to not just win, but humiliate these agencies, call them out in the most embarrassing way possible, trash the senior executives, and make things very uncomfortable in general for these firms.

They don’t want them to merely suffer — they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.
About damned time. While everyone has (rightfully so) been raging about the role of AIG, Goldman Sachs, etc. in this financial mess, the ratings agencies have gotten off practically scot-free. The agencies are supposed to be objective arbiters about the quality of a stock, bond, or other financial instrument. They failed miserably, and in many instances have been shown to be working in lockstep with the investment banks that issue the instruments themselves.

The agencies completely abdicated their responsibility. Here's hoping they get taken to the cleaners.

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