The Things Credit-Rating Analysts Say

A credit-rating analyst with an affinity for the Talking Heads

The Justice Department’s lawsuit against Standard & Poor’s, filed Monday evening, accuses the credit-rating agency of bestowing top ratings on investments that were destined to fail. But the behavior described in the complaint, leading up to the financial crisis, was not without its colorful moments.

By March 2007, the complaint says, S.&P. knew that certain mortgage securities were doing poorly and might have to have their ratings revised. That month, an analyst who had taken a close look at 2006-vintage securities sent an e-mail to some colleagues with the subject line “Burning down the house â€" Talking Heads,” according to the complaint. The e-mail reproduced in the complaint read:

With apologies to David Byrne…here’s my version of “Buring Down the House“.

Watch out
Housing market went softer
Cooling down
Strong market is now much weaker
Subprime is boi-ling o-ver
Bringing down the house

Hold tight
CDO biz â€" has a bother
Hold tight
Leveraged CDOs they were after
Going â€" all the way down, with
Subprime mortgages

Own it
Hey you need a downgrade now
Free-mont
Huge delinquencies hit it now
Two-thousand-and-six-vintage
Bringing down the house.

Minutes later, the complaint says, the analyst sent a follow-up e-mail: “For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-).”

A couple days later, the analyst circulated another e-mail with a video of him performing the first verse of the song in the S.&P.’s offices for an audience of laughing coworkers, the complaint says.

An analyst who received the lyrics and the videotaped performance su! bsequently gave a high rating to a security that defaulted the following year, according to the complaint.

The lawsuit also describes a meeting where David Tesher, a managing director at S.&P., discussed the unraveling housing market. Afterward, two analysts had an instant message conversation reproduced in the complaint:

Analyst 2: that means we will see grumpy analyst sand [sic] grumpy bankers and a grumpy [Managing Director in Global CDO ("Executive K")]

Analyst 1: I’m grympy [sic] anyway

In April, one analyst wrote in an instant message that “we rate every deal,” and “it could be structured by cows and we would rate it,” according to the complaint.

In July, an analyst chose to represent the situation visually, e-mailing employees of two banks a cartoon that depicted asset-backed collateralized debt obligations as a game of Jenga, the complaint says.

One recently hired analyst apparently had a penchant for sarcasm. That July, he respoded to an e-mail from an investment banker asking how his new job was going, saying, according to the complaint:

Job’s going great. Aside from the fact that the MBS world is crashing, investors and the media hate us, and we’re all running around to save face… no complaints.

Later, as part of the same e-mail thread reproduced in the complaint, the analyst added:

You should see how it is here right now. It’s like a [mild expletive] trading floor. “Downgrade, Mortimer, downgrade!!!”