Testimony presented to the US Senate from both sides of the debate made interesting reading for both rating agencies and their detractors at the end of September. The agencies have, not surprisingly, been at pains to remind the market exactly what a rating means, and how seriously they take their job. They have an air of righteous indignation – hardly surprising given the mauling they have been given from all sides. "We had not heard a peep from the investor community before about our sub-prime criteria," grumbles one rater. "It is only when they are trying to keep their jobs because they bought sub-prime that they start complaining."
There is a degree of support for their position. "The rating agencies have received a bum rap in all of this," says an observer. "It is not their job to undertake due diligence on underwriting standards in the mortgage market." But certainly the weight of opinion among market participants that Euromoney spoke to in October was against them – or at least in favour of a substantial reassessment of how the relationship between the agencies and the market works.
Point one
The first point on the charge sheet is the most straightforward; they got their assumptions badly wrong on how the sub-prime mortgage pools backing securitized structures would behave.
