Long time readers know that this has been an issue of interest to me, because I am simply flabbergasted that no one has gone after the Credit Ratings agencies after the Wall Street meltdown the way they went after Arthur Anderesen following Enron. As far as I am concerned, the Ratings Agencies were willing accomplices:
California Attorney General Edmund G. Brown Jr. began an investigation into three major U.S. credit-rating companies and their role in the financial crisis, in part to determine whether the firms violated California law.
The attorney general’s office on Thursday issued subpoenas to McGraw-Hill Cos.’ Standard & Poor’s Ratings Services, Moody’s Corp.’s Moody’s Investors Service and Fimalac SA’s Fitch Ratings, ordering them to provide information on their ratings processes by Oct. 19.
The agencies “put their seal of approval on high-risk mortgage-backed securities, recklessly giving stellar ratings to shaky assets that proved toxic to the entire financial system,” Mr. Brown said.
The move is the latest probe into how the ratings companies rated billions of dollars in mortgage-related securities, many of them underpinned by subprime loans.
This is excellent news. In other news, it looks like the Goldman boys finally pissed off enough people. Not sure if the case in which their proprietary code was stolen was the final clue that regulators need, but it looks like they are making a move (albeit a small first step):
It is an obscure art of Wall Street, a technique that gives a scattering of traders an edge over everyone else — and the Securities and Exchange Commission wants to stamp it out.
The S.E.C. on Thursday proposed banning what are known as flash orders, which use powerful computers to glimpse at investors’ orders. The practice is often associated with a controversial corner of finance called high-frequency trading, which has grown, largely hidden from view, into a potent force in the markets.
The proposed ban was announced on the same day that the S.E.C. put forward new rules for credit ratings agencies, which were widely criticized for their role in the financial crisis. Together, the moves telegraphed a tougher line from the commission after a series of prominent missteps, including its failure to spot the Ponzi scheme orchestrated by Bernard L. Madoff.
Critics say flash orders favor sophisticated, fast-moving traders at the expense of slower market participants. Using lightning-quick computers, high-frequency traders often issue and then cancel orders almost simultaneously and get an early peek at how others are trading.
I’m hard-pressed to figure out how flash trading was EVER legal. It makes absolutely no sense to me. As I understand it, this is fundamentally no different from one player at a poker table being able to look at everyone’s cards before every hand. It really is kind of insane.