Former Ratings Officials Testify Before FCIC

Eric Kolchinsky, Moody’s former managing director in charge of rating subprime mortgage securities, testified before the Financial Crisis Inquiry Commission. He told of how superiors pressured analysts to increase market share. He said that bankers seeking reviews for their mortgage securities took advantage of this by giving rating agencies no time to conduct proper reviews of the securities.

“That was the problem,” said Mr. Kolchinsky. “I said I needed three or four weeks to research the deal, but because bankers knew we could not walk away from a deal, they sent the documents three or four days before closing or even after closing.”

FCIC Chairman Phil Angelides, former state treasurer of California, remarked that, “The very system didn’t allow you to say no to a whole market slice.” Moody’s could have said no. They chose to rate. This is corporate responsibility, not ratings shortfalls.

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