getting burned on AAA toxic shit- Pension fund investors lost billions of dollars trusting the rosy credit ratings stamped on troubled mortgage securities before the 2008 crisis. In its aftermath, they have spent years and many dollars suing Moody’s and Standard & Poor’s, the main purveyors of those dubious grades. That these funds and other plaintiffs are trying to hold the ratings agencies to account is a good thing. And yet, there’s a mystifying disconnect in some of these disputes. On one hand, pension funds or state officials are telling the courts that Moody’s and S.&P. were negligent and their ratings marred by flawed methods and conflicts of interest. On the other hand, when the professionals who manage state funds buy bonds or mortgage securities, their investment policies require them to rely on the assessments of — you guessed it — the very same ratings agencies. Consider the $300 billion California Public Employees’ Retirement System, or Calpers. Its 2009 lawsuit against Moody’s and S.&P. contends that the system lost $800 million on mortgage securities it bought based on those agencies’ positive ratings. The ratings, Calpers said in its lawsuit, were negligent misrepresentations. In the meantime, Calpers’ Statement of Investment Policy for Global Fixed Income says the fund can invest in corporate bonds only if they are rated investment grade by “a recognized credit rating agency,” which it defines as Moody’s, S.&P. or Fitch Ratings. I asked Calpers why its investment staff must rely on ratings from the same companies that it is suing for negligence. A spokesman declined to answer my question. nytimes/2014/06/15/business/pension-funds-dancing-a-two-step-with-ratings-firms.html?_r=0
Posted on: Mon, 16 Jun 2014 14:09:30 +0000
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