I have, on more than one occasion, placed blame on the ratings agencies, along with a few others, for creating financial products of mass destruction.
These products, primarily CDOs (collateralized debt obligations) and CDSs (credit default swaps), are at the center of the market's collapse. Synthetic derivatives, tied to the U.S. mortgage markets, weaseled their way into practically everyone's portfolio with the help of the ratings agencies. I am talking about Moody's, S&P and Fitch. No one has really called them to task about rating these products, laced with low-quality loans at A-rate or even better, until now.
In the most notable challenge yet, CALPERS, the biggest U.S. pension fund, has filed suit against the ratings agencies for more than a billion dollars in losses. CALPERS claims that the ratings agencies were "wildly inaccurate and made negligent representations" in their assessment of all these crazy financial products. Even more compelling was the fact that the entire ratings model was fraught with error because of a conflict in interest. The very same banks packaging the products for sale were paying the ratings agencies for what they hoped would be high ratings. You know that old saying, "you get what you pay for." This was a prime example.
So far there have been a lot of fingers pointed and accusations made, but no one was actually being held accountable for the destruction to everyone's net worth. I was starting to think that it was just going to be brushed under the rug when this suit was filed. I applaud CALPERS for filing the suit and not waiting for the government to overhaul the financial system. There is no telling what, if anything, would be changed. So this lawsuit will press the ratings agencies to explain how they doled out the highest seal of approval to all these fancy subprime investment vehicles.
Trillions of dollars have been lost because of highly suspect investments that found their way into the mutual funds and retirement plans of average Americans. It will be interesting to see what the ratings agencies have to say for themselves. The spectacle alone could spur additional lawsuits and inquiries.
I will not hold my breath hoping that someone will actually be held accountable for the investments at the core of market's meltdown, but at least CALPERS is willing to try. I wish them the best of luck.
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at carol_perry@worldnet.att.net or 267-5358.