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	Credit rating agencies and the subprime crisis by Wikipedia   Credit rating agencies played a very important role at various stages in the subprime crisis. They have been highly criticized for understating the risk involved with new, complex securities that fueled the United States housing bubble, such as mortgage-backed securities (MBS) and collateralized debt obligations (CDO).   The Financial Crisis Inquiry Commission reported in January 2011 that: "The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly.   In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms."   Credit rating agencies are now under scrutiny for giving investment-grade, "money safe" ratings to securitization transactions (CDOs and MBSs) based on subprime mortgage loans. These high ratings encouraged a flow of global investor funds into these securities, funding the housing bubble in the U.S.   An estimated $3.2 trillion in loans were made to homeowners with bad credit and undocumented incomes (e.g., subprime or Alt-A mortgages) between 2002 and 2007. These mortgages could be bundled into MBS and CDO securities that received high ratings and therefore could be sold to global investors.   Higher ratings were believed justified by various credit enhancements including over-collateralization (i.e., pledging collateral in excess of debt issued), credit default insurance, and equity investors willing to bear the first losses.   Economist Joseph Stiglitz stated: "I view the rating agencies as one of the key culprits...They were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the rating agencies." Without the AAA ratings , demand for these securities would have been considerably less. Bank writedowns and losses on these investments totaled $523 billion as of September 2008.   The ratings of these securities was a lucrative business for the rating agencies, accounting for just under half of Moody''s total ratings revenue in 2007. Through 2007, ratings companies enjoyed record revenue, profits and share prices. The rating companies earned as much as three times more for grading these complex products than corporate bonds, their traditional business. Rating agencies also competed with each other to rate particular MBS and CDO securities issued by investment banks, which critics argued contributed to lower rating standards. Interviews with rating agency senior managers indicate the competitive pressure to rate the CDO''s favorably was strong within the firms. This rating business was their "golden goose" (which laid the proverbial golden egg or wealth) in the words of one manager.   Author Upton Sinclair famously stated: "It is difficult to get a man to understand something when his job depends on not understanding it." This competitive pressure and the resulting profits gave a personal financial incentive to management to lower standards.   Internal rating agency emails from before the time the credit markets deteriorated, discovered and released publicly by U.S. congressional investigators, suggest that some rating agency employees suspected at the time that lax standards for rating structured credit products would produce negative results.   For example, one email between colleagues at Standard & Poor''s states "Rating agencies continue to create and even bigger monster--the CDO market. Let''s hope we are all wealthy and retired by the time this house of cards falters." Visit the related web page
	200 Groups urge end to speculation that drives Global Food Crisis by Food & Water Watch USA   Mar 2009   Food & Water Watch, along with a coalition of faith, farm, food, hunger and international development groups, today sent a letter to President Barack Obama and congressional leaders demanding decisive action to prevent speculation in the commodity markets from threatening the food security of hundreds of millions of people.   According to the coalition’s letter, “A significant part of last year’s food price fluctuations were the result of excessive speculation in the commodities markets by the very hedge funds and investment banks that helped create the current economic meltdown.”   “Congress and the White House must wring excess speculation out of the commodities markets to tamp down on the tremendous food price volatility that is harming consumers and farmers worldwide,” said Food & Water Watch Executive Director Wenonah Hauter.   The letter was signed by 183 social justice and civil society groups, including 76 U.S.-based organizations and 107 international groups from 29 countries. The United Nations Food and Agriculture Organization estimated that 200 million additional people in the developing world faced malnutrition because of surging food prices in 2008. The letter urges the president and Congress to pass legislation to re-regulate the commodity markets to prevent speculation from continuing to contribute to global hunger.   The letter states that the 2008 food price volatility “could have been stopped with sensible rules that, if enforced, would have staved off the malnutrition and starvation that was caused by excessive gambling of food prices. Important reforms are needed now to prevent mega-investors from viewing the futures market like a casino where they can gamble on hunger.”   There are several proposals in Congress that aim to reform the commodities markets. House Agriculture Committee Chairman Collin Peterson passed legislation out of his committee (H.R. 977, the Derivatives Markets Transparency and Accountability Act of 2009) that takes important first steps to prevent excess speculation from inflating food prices, but this legislation needs to be strengthened. Senators Tom Harkin, Chairman of the Senate Agriculture Committee, and Senator Carl Levin have also introduced measures.   “Congress is assembling important legislative building blocks that could prevent speculative agricultural price bubbles from increasing global hunger,” said Hauter. “Strong commodities speculation reform measures must ensure that all commodity futures marketplaces are adequately regulated and that giant investment funds do not exert undo speculative pressures on food prices.” Visit the related web page
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