Waxman Hammers Credit Rating Agencies

Now, this is how you start an oversight hearing: Rep. Henry Waxman (D-Calif.) -- whose committee is grilling ratings agencies on their role in the ongoing financial crisis -- hasn't even let his witnesses give their opening statements before laying into the sector.

About Moody's chairman Raymond W. McDaniel, Waxman is saying this: "Two months ago, Ray McDaniel said virtually no one anticipated what is occurring. But documents obtained by this committee tell a different story."

That's usually a sentence you don't want to hear.

The ratings agencies are supposed to be the referees of the financial sector, rating the credit-worthiness of bonds and securities. Waxman wants to find out why the agencies often gave high ratings that turned out to be wrong.

Waxman then went on to read from McDaniel's confidential briefing to Moody's directors in 2007, warning of a pending crisis caused by subprime securities rated by Moody's.

Waxman was just getting going.

He quoted from anonymous executives at Moody's, Standard & Poor's, Fitch and other ratings agencies, telling a tale of unheeded warnings. The ratings agencies continued to rate risky securities -- such as the collateralized debt obligation, or CDOs -- because they were getting paid big bucks, the quotes suggest.

"We sold our soul to the devil," one ratings agency employee said, according to Waxman.

"It could be structured by cows and we'd rate it," said another.

"Rating agencies continue to create an ever bigger monster -- the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters,” said another.

"The story of the credit-rating agencies is a story of a colossal failure," Waxman concluded.

It could be a long day for the witnesses.

-- Frank Ahrens