Even if you’re bored of hearing about pre-crisis financial industry shenanigans, the government’s complaint against rating agency Standard & Poor’s (S&P) is worth your while.
The Justice Department alleges that S&P had full knowledge that the ratings it was stamping on Residential Mortgage Backed Securities (RMBS) were too high, and the DOJ has collected e-mails and instant messages that corroborate that assertion in the most embarrassing and damning way possible.
Analysts even made a fun song about the destruction of the U.S. mortgage market, to the tune of Talking Heads classic, ‘Burning Down The House.’
But first, on March 1st 2007, David Tesher, the Managing Director of S&P’s Cash CDO (Collateralized Debt Obligation) Group held a meeting in which he explained to analysts that the RMBS market was about to die a grizzly death.
He went on to explain that the issuers of these rates (banks) were trying to close deals as quickly as possible.
From the complaint (page 68):
After this meeting, two analysts had an instant message exchange lamenting that a market crash would mean a “grumpy” Managing Director and grumpy bankers (page 70):
Sounds like a bit of an understatement, no? That said, it’s not as if analyst were lost on the conflict of interest in rating these instruments and getting paid by the banks they were rating them for. They talked about it amongst themselves.
Here’s the famous “it could be structured by cows” and we would rate it line between two analysts in April of 2007 (page 80):
At a certain point, the only people these analysts could really commiserate with were the clients that they were rating these securities for — Wall Street bankers.
Here’s a July 2007 conversation between an analyst and his client in which he says that the entire system is completely insane (page 99).
All this doesn’t mean that no one at S&P was having fun, though.
In March of 2007 one analysts (referred to as “Analyst D”) wrote a little ditty about the collapse of the mortgage market set to the tune of the Talking Heads Song, ‘Burning Down the House.’
Of course, Analyst D was asked to hold off on e-mailing the song (and the attached video performance) but he kindly offered to perform the song in anyone’s cubicle upon request.
All singing, all dancing financial collapse. If you have that video, please send it over to Business Insider.
Until then, you can make do with the original (somehow):