Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Lars Toomre's blog

Timothy Geithner: "Illigitimum non Carborundum"

Toomre Capital Markets LLC ("TCM") has previously written favorably of New York Federal Reserve President Timothy Geithner in the posts Bear Stearns: U.S. Banking Committee Starts Looking At Regulatory Change and Suggested Reading: Timothy F. Geithner Speech on Credit Derivatives. New York Fed President Timothy Geithner has been the Federal Reserve's point person dealing with Wall Street during the on-going credit crisis that seemingly started last year with the collapse of two Bear Stearns hedge funds that were highly leveraged and highly exposed to sub-prime mortgages and Collateralized Debt Obligations ("CDOs"). His active involvement in trying to stabilize the bursting of the housing bubble culminated with his prominent involvement with the March 2008 rescue of Bear Stearns which is expected to formally taken over by J.P. Morgan Chase & Co. on Friday, May 30th 2008.

Since the Bear Stearns rescue effort unfolded in mid-March, there has been considerable criticism of the Federal Reserve and Treasury Department brokered sale of Bear Stearns to JP Morgan, particularly around the issues of moral hazard and the Federal Reserve's ability to act as an 'honest broker' in future financial crises. On the front page of the May 30th 2008 edition of The Wall Street Journal, there is an article written by Greg Ip entitled Fed's Fireman On Wall Street Feels Some Heat that summarizes some of the criticism still being directed at Timothy Geithner. The article contains the interesting reference that "As early criticism of the rescue swirled, the president of the Dallas Fed, Richard Fisher, sent Mr. Geithner an email in Latin: 'Illigitimum non carborundum,' along with his translation, 'Don't let the bastards get you down.' Mr. Geithner replied that his grandfather had the same slogan on his kitchen wall."

Toomre Capital Markets LLC for one is glad that Mr. Geithner pushed for the Federal Reserve to lend $29 billion to JP Morgan to facilitate the latter's takeover of Bear Stearns on Sunday, March 16th 2008. Although some rather ignorant Congressmen claimed that the Federal Reserve's participation "exposed the American taxpayers to unknown amounts of financial loss", TCM is sure that such politicians would have been singing a much different self-serving tune had Bear Stearns filed for bankruptcy early the next Monday morning. Many people who are not intimately involved with the Capital Markets do not appreciate how intricately the various investment and global commercial banks have become through derivative contracts and particularly what are known as Credit Default Swaps ("CDS").

Former UBS Private Banker To Plead Guilty

Earlier this week, Toomre Capital Markets LLC ("TCM") wrote about how UBS had advised current and former members of its private banking staff serving American clients to avoid traveling to the United States. The apparent concern was an indictment by American authorities against one of UBS's senior private banking executives, Bradley Birkenfeld, and a co-conspirator, Mario Staggl, a resident of Liechtenstein, a European principality where he is believed to remain at large. This tax-evasion case has led to on-going retention of Martin Liechti, who is UBS's Swiss-based head of international private banking for North and South America, as a "material witness."

Late on the afternoon of Thursday May 29th 2008, The Wall Street Journal is reporting that Bradley Birkenfeld has apparently decided to change his plea to guilty. Apparently, in a federal court filing earlier in the day, a court clerk stated that Mr. Birkenfeld will change his plea at a hearing scheduled before U.S. District Judge William Zloch in Ft. Lauderdale, Florida on June 9th. He had previously pleaded not guilty.

The article continues "The former UBS banker is part of a larger probe that U.S. prosecutors are conducting into whether UBS advised wealthy American clients on ways to utilize complex corporate entities and off-shore locales to avoid paying U.S. taxes. The U.S. inquiry, which became public earlier this month, comes at a difficult time for UBS, which has written down some $38 billion in securities tied to subprime mortgage loans. A UBS spokesman wasn't immediately available to comment on Mr. Birkenfeld's court filing. Danny Onorato, a lawyer for Mr. Birkenfeld, said he could not discuss details of the agreement. A notice by the court clerk says the federal judge hearing the case 'will ask for a full confession' by Mr. Birkenfeld."

Bear Stearns Hedge Funds To Be Liquidated in US Courts

On May 28th 2008, The New York Times is reporting (via Reuters) that Liquidators Of Bear Stearns Funds Lose Court Appeal. Apparently the representatives of the two collapsed Bear Stearns Cos Inc hedge funds -- the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund -- linked to risky mortgage investments have lost a court appeal seeking to have the funds liquidated in the Cayman Islands instead of in the United States.

The ruling by U.S. District Judge Robert Sweet in Manhattan upholds a bankruptcy court's decision last year requiring that the funds be liquidated in U.S. courts. Holding the proceedings in the Cayman Islands, home to many hedge funds for tax reasons, could have shielded the funds' assets from some U.S. creditors. The ruling could have implications for other funds that seek protection under Chapter 15 of the U.S. Bankruptcy Code, which covers cross-border insolvencies. The judge upheld the bankruptcy court's finding that the funds' "center of main interests," as defined by Chapter 15, was in the United States.

"It is hoped that resolution of these issues may provide some aid to navigation in these uncharted waters," Sweet wrote in the decision, dated May 22 and made public on Tuesday.

"The process by which the financial problems of insolvent hedge funds are resolved appears to be of transcendent importance to the investment community and perhaps even to the society at large."

Wall Street Exodus: Fear, Panic and Anger

Back in one of the items tucked into the Toomre Capital Markets LLC ("TCM") post entitled March 27, 2008 TCM Observations, TCM noted that already 20,000 financial services sector jobs had been eliminated since the start of 2008. Lars Toomre wondered what the reader's over/under number might be for the total number of Wall Street jobs that might be shed in 2008 when all of the stealth layoffs are factored in. He personally was thinking that the total reduction might be close to 100,000 this year.

On Sunday, May 25th 2008, The New York Times focused on the psychic toll the current round of layoffs is having on the many people affected in an article written by Sarah Kershaw entitled Wall Street Exodus: Fear, Panic and Anger. The article starts "The mind wraps itself around losing a job, one of life's great traumas, in jagged and swerving fits. When the call comes in, when rumor turns to reality, when it's not the broker in the next cubicle but you who is presented with a stack of severance papers, the psyche takes over. It goes numb. It goes into survival mode. Fear quickly turns into anger. For some, there may be relief in saying goodbye to what therapists call the "psychological terror" that has haunted the corridors of troubled financial institutions since last summer. But what follows — the unknown — may be no less frightening."

Apparently by the NYT's count, "Since August, banks worldwide have announced plans to eliminate as many as 65,000 jobs. Many losing their jobs now have lived through other crises on Wall Street — the 1987 market crash, the widespread layoffs of the early 1990s and the financial upheaval of 1998. But investment bankers, recruiters and psychologists say the current economic downturn, the cascade of layoffs and the steady beat of grim financial news have exacted an especially daunting psychic price."

UBS Tells Unit Staff to Avoid US Visits

On Wednesday May 28th 2008, the world awoke to the Financial Times (of London) headline UBS tells unit staff to avoid US visits. According to the FT, UBS has told current and former members of it private banking team responsible for rich US clients not to travel to the United States. Apparently, the reason for the move follows the recent indictment of one of the unit's former senior executives, Mr. Bradley Birkenfeld, who US authorities have accused of helping a billionaire client evade taxes. Perhaps the more genuine reason for the recommended travel restriction is that UBS may not yet want more negative publicity with the revelations of other wealthy Americans who sought to avoid taxes through illicit means arranged by UBS?

The FT article goes on to disclose that UBS has made legal counsel available to the more than 50 members of the private banking unit that had serviced American clients. UBS announced back in November 2007 that it had decided to wind down its cross-border private banking business with US customers, and many of these staff members have already left the private banking unit. Mr. Birkenfeld, an American citizen who has lived in Switzerland for some number of years was formerly part of the team headed by Mr. Martin Liechti, UBS' Swiss-based head of international private banking for North and South America. In April 2008, Mr. Liechti was detained by American authorities and remains in the United States as a "material witness."

Mr. Birkenfeld apparently was hired by Mr. Liechti because of his particularly close relationship with Igor Olenicoff, a US real estate tycoon, who reached a legal settlement with authorities last December. Apparently, because of his relationship with Mr. Olenicoff, Mr. Birkenfeld was able to negotiate a higher rate of remuneration than many of the other team members. Mr. Birkenfeld also apparently had only two major clients rather than the twenty or so serviced by other team members. The article concludes with information that Mr. Birkenfeld's relationship with the UBS private banking unit soured after UBS claimed that he not performed to expectations. Mr. Birkenfeld took legal action against UBS over his termination and then cooperated with the US authorities in their on-going investigations of UBS.

UBS Stock Price Declines By Near 14%

One has to wonder if the Swiss banking giant UBS can do anything right. Toomre Capital Markets LLC ("TCM") notes with interest that around noon EDT on Tuesday May 27th 2008 that UBS is trading down about 14%. Supposedly this stock price decline in the common stock is tied to the second capital increase that UBS has launched in the last year.

Perhaps, though, the share decline might be related to the prospect of future losses tied to both real estate and auction rate securities? The Wall Street Journal article UBS Warns Of Losses Tied To Real Estate suggests that UBS's problems in the Capital Markets may continue. Apparently, the Swiss bank is likely to take further losses in its non-U.S. mortgage portfolios as well as some losses with the bank's Auction Rate Securities ("ARS") holdings. The total exposure to auction-rate securities, used mostly in municipal financing, increased to 11 billion Swiss francs ($10.7 billion) from six billion francs during the first quarter!!!!

Toomre Capital Markets LLC truly wonders whether UBS belongs in the global fixed-income business given its demonstrated incompetence. How the heck did the ARS portfolio rise by about 5 billion Swiss francs since March 31st? While it is only TCM speculation, perhaps UBS decide it needed to bail out some of the holdings held by retail investors in the former Paine Webber retail broker system? The percentage of ARS held by retail investors increased sharply during 2007 and apparently many of such retail investors were sold ARS without a prospectus and the promise that ARS were as good as cash. Perhaps UBS decided it was better to buy such holdings back (at near par prices) rather than become exposed to many arbitration claims about their incompetence in educating their retail broker force to the risks and rewards of ARS holdings?

Fraudster Kirk Wright Checks Out

Toomre Capital Markets LLC ("TCM") has previously written about the hedge fund con artist Kirk S. Wright and his now-defunct Atlanta-based hedge fund management firm International Management Associates. (Interested readers might want to review the TCM posts entitled Update on Kirk Wright and IMA hedge fund fraud scandal or Kirk Wright, IMA Hedge Fund Manager, Arrested in Miami Beach.)

According to The International Herald Tribune, on Wednesday May 21st 2008, this con artist was convicted in Atlanta Federal court of many fraud counts that effectively would lead to spending the rest of his life in Federal prison upon sentencing. From the article,

According to authorities, Wright and his company collected more than $150 million spread across thousands of client accounts since 1997 and used false statements and documents to mislead some of them to believe the value of those investments was increasing. Much of that money is missing.

Prosecutors said Wright had been lying to his investors since at least 2001 about their investments' performance and the balances in their accounts. He reported substantial investment gains almost every month; the evidence revealed that he lost almost every dollar invested in the market, prosecutors said.

They said he diverted millions of dollars of investor's money for personal expenses, including cash for himself and family members, jewelry, house renovations, a $500,000 wedding, up to six luxury vehicles, and multiple pieces of real estate, mainly in Atlanta and California….

According to the U.S. Attorney's Office in Atlanta, Wright could receive a maximum sentence of 710 years in prison, a fine of up to $16 million and be ordered to pay restitution to the victims. He already has been hit with a $20 million judgment as part of a civil suit filed by the Securities and Exchange Commission. Sentencing is set for Aug. 26.

Merrill Upped Ante as Boom in Mortgage Bonds Fizzled

Toomre Capital Markets LLC("TCM") has previously written about Jeff Kronthal Returns to Merrill Lynch and the absolutely abysmal performance put in by former CEO Stan O'Neal in the TCM post Merrill Lynch's Stan O'Neal: Why Is He Even Still Employed? Ahead of Merrill Lynch's expected announcement of abysmal first quarter earnings, on Wednesday April 16th 2008, The Wall Street Journal ran a front page story written by Susan Pullman (and others) entitled Merrill Upped Ante as Boom in Mortgage Bonds Fizzled. While the article sheds favorable light on Merrill Lynch's new CEO John Thain and (old TCM friend) Jeffrey Kronthal since their respective arrivals in December 2007, the article absolutely savages the former Merrill Lynch fixed-income and senior management. With the expected total write-downs now expected to approach $30 billion, it is very clear how absolutely out of control Merrill Lynch truly was since mid-2006 when Jeff Kronthal was famously relieved for not taking enough risk in the Collateralized Mortgage Obligation ("CDOs") business.

This article explains Merrill Lynch "revved up its production of complex debt securities -- despite a shortage of buyers for them -- in what turned out to be a misguided effort to limit its losses. Its torrid underwriting loaded Merrill with exposure to mortgage securities, whose top credit rating provided scant protection when investors fled. Then Merrill made another fateful move: trying to hedge some of its massive mortgage risk through bond insurers whose strength was questionable." Now among those that are keenly interested in learning what went wrong and when the Merrill Lynch managers knew the extent of their troubles is the Securities and Exchange Commission ("SEC"), which "is examining whether Merrill and other firms should have told investors sooner about the stumbling mortgage business last year."

From the article, in 2006 risk controls at Merrill Lynch were beginning to loosen. Apparently a senior risk manager, John Breit, then the head of market-risk management, was ignored when he objected to certain underwriting risks. It is suggested that as a result, senior Merrill Lynch management then demoted the head of market risk management position within the management hierarchy lead to Mr. Briet's resignation. The article continues,

ISDA: Credit Derivatives Increase By 81% in 2007!!

On April 16th 2008, the International Swaps and Derivatives Association, Inc. ("ISDA") released the results of its Year-End 2007 Market Survey of privately negotiated derivatives. In that report, IDSA reports "The notional amount outstanding of credit default swaps (CDS) grew 37 percent to $62.2 trillion in the second half of 2007 from $45.5 trillion at mid-year. Further CDS notional growth for the whole of 2007 was 81 percent from $34.5 trillion at year-end 2006. The survey monitors credit default swaps on single names and obligations, baskets and portfolios of credits and index trades." [Emphasis added]

Holy crap! No wonder there was so much concern about counter-party risk a month ago when a "run on the bank" which led to the acquisition of Bear Stearns by JPMorgan. Toomre Capital Markets LLC ("TCM") now even more appreciates the efforts of the President of New York Federal Reserve, Timothy Geithner, to clean up the credit default swap middle and back office operational issues. With growth this explosive, the major investment and global banks are particularly interconnected. From a moral hazard perspective, due to their derivatives exposures, are not all of these banks "too big to fail"? Or does this explosive growth suggest that the Capital Markets finally needs a global clearing mechanism so that there is more price transparency on what specific derivatives are worth and that there is less counter-party risk in the financial system?

Slate: Coming 'Jingle Mail' Wave

Toomre Capital Markets LLC ("TCM") wrote yesterday in the post 'Moment of Truth' for Wachovia about Wachovia's surprise first quarter earnings loss and how much of the loss was due to their approximately $130 billion portfolio in pay option ARMs. On Tuesday April 15th 2008, Slate has followed up with the sobering article entitled Here Comes the Next Mortgage Crisis. The subtitle to the article is Subprime was just the beginning. Wait until California's prime borrowers start handing their keys to the bank. For those who are more optimistic that the Capital Markets are nearing the end of the mortgage crisis, they would do well to read this very sobering article written by Mark Gimein.

The main thesis behind this article is that with the California residential real estate prices in a free fall, the phenomena of walking away from a home will sharply increase, even for those with strong credit ratings in the so-called "prime" mortgage category. TCM refers to this walk-away phenomena as "jingle mail" and sadly thinks that this phrase will become part of the national lexicon in the coming two years. The article states "Unfortunately, the crisis in California is going to get much worse, and there is no bailout that will solve it. Why? Because if the first stage of the foreclosure crisis was about people who could not afford their mortgages, the next stage will be about people who have every reason not even to try to pay their mortgages." [TCM emphasis added]

Later the article continues. "… for all the California homeowners who in the next year or two are going to find themselves with the choice of whether, faced with a huge new wave of interest resets and a historic decline in the value of their homes, they will simply walk away. First, those home prices: For a weird few months of the mortgage crisis, statisticians came up with peculiar numbers about home values, rolling out comforting stats showing single-digit declines. Well, that's over. Last month, the California Realtors' association (folks who in October managed to "project" that prices would fall 4 percent in 2008) reported that, actually, California house prices in February fell 26 percent from a year ago. In the places where the foreclosure boom has hit hardest, it's worse."

This sharp decline in California real estate prices is causing many of the mortgage products originated in the 2005-2007 to have current LTV's near or in excess of 100 percent. The article then continues to explain how the decline in real estate prices when coupled with coming "prime" option ARM resets is likely to leave many homeowners with the economic quandary of whether they should remain in "homedebtor" hell servcing more debt than the home is worth or in a nonrecourse state like California simply walk away. The article explains:

'Moment of Truth' for Wachovia

Toomre Capital Markets LLC ("TCM") has written previously about the perils of pay option ARMs in the post Option ARMs Spur New Worries. One of the largest holders of this type of mortgage product is Wachovia, which on Monday April 14th 2008 announced a substantial capital raise simultaneously with the release of its first quarter financial results. The loss of $393 million was significant less than the small profit Wall Street was expecting.. One of the main culprits in the loss was those pesky Pay Option ARMs, many of which came with the 2005 acquisition of Golden West (also known as World Savings) based in Oakland, California.

According to the HousingWire website, "The so-called "pick a payment" loans [Option ARMs] represented $119.6 billion of Wachovia's mortgage portfolio at year's end, by far the largest segment of the bank's mortgage loan holdings. Among these loans, $2.76 billion — or 2.31 percent — were classified as non-performing during Q4; Wachovia has seen NPAs in this loan category increase by $1 billion within one quarter."

Now, according to the just released earnings report, credit provisions for non-performing option ARMs increased by another $1.6 billion as the NPA percentage rose to 3.55%. Plus new credit modeling for this large asset pool leads Wachovia to suggest that credit reserves for Option ARMS in 2008 will be $3.2 - $3.8 billion and $2.4 - 2.8 billion for 2009. Ouch!! As the saying goes, a billion here, a billion there and pretty soon one is talking about some real serious money.

Volcker Takes on Bernanke

On Friday April 11th 2008, The New York Times columnist Floyd Norris penned It's a Crisis, and Ideas Are Scarce. That article starts with: "As the credit crisis has slowly expanded and worsened, there has been a flurry of activity in Washington to reduce the damage from it. There are bailouts and tax breaks, and even checks to parents of school-age children. But there is remarkably little action aimed at getting the credit system functioning again. In part, that is because there is a scarcity of ideas. Paul Volcker, the former Federal Reserve chairman whose legacy has not crumbled since he left office, was right this week when he said the financial engineers had created "a demonstrably fragile financial system that has produced unimaginable wealth for some, while repeatedly risking a cascading breakdown of the system as a whole.""

The above quote is from the extraordinary speech Former Federal Reserve Chairman Paul Volcker made to the Economic Club of New York on April 9, 2008. In the April 12th 2008 edition of the (Toronto) Globe and Mail newspaper, Avner Mandleman penned A blunt former Fed chairman takes on Bernanke. Take heed of what he says. This is an article that Toomre Capital Markets LLC ("TCM") strongly recommends reading in its entirety. It starts with:

A few days ago an unusual event took place: Paul Volcker, the mythical U.S. Federal Reserve Board chairman from the Reagan years, criticized the policy of the current Fed chairman, Ben Bernanke, in a speech to the Economic Club of New York.

Just so you grasp how extraordinary this was, you should first understand that normally a past Fed chairman scrupulously avoids saying anything at all about current Fed policy - for the simple reason that the current Fed chairman's words are one of his most important tools: They can sway markets.

This ability does not fade entirely when a Fed chairman leaves.

So when a past Fed chairman speaks, his words can clash with those of the present one and make that one's job difficult. Out of professional courtesy, past Fed chairmen therefore keep quiet; Mr. Volcker especially - the man who hiked interest rates to 20 per cent to kill inflation, at the cost of a deep recession. But last week Mr. Volcker spoke his mind bluntly. He said, in effect, that the current Fed is not doing its job.

This would have been unusual enough. But Mr. Volcker went further. Not only is the Fed not doing its job, he said, but it is doing the wrong job: It is defending the economy and the market, instead of defending the dollar. And just to stick the knife in, Mr. Volcker added that this bad job now will make the real job - defending the greenback - much harder later. It'll cause even greater economic suffering.

In plain words, Mr. Volcker implied that the current Fed is not only incompetent, but [also] that its actions are dangerous.

There is no record of Mr. Bernanke's reaction, nor that of anyone else inside the Fed. But there was plenty of buzz in the market because what Mr. Volcker said amounted to a rousing call to raise interest rates. Yes, raise rates, and do it now. [emphasis added]

More Bank Regulations Coming

Late last week and during the weekend of April 12th 2008, the G-7 Finance ministers met in Washington. Rarely are commercial interests part of these meetings. However, on Friday evening the finance ministers and central bankers invited representatives of some investment and global banks to join them for dinner. Deutsche Bank, Mizuho Corporate Bank, Citigroup, Lehman Brothers, JP Morgan and Bank of America were rumored to be among the ten or so global institutions invited. According to The London Telegraph, the focus of the dinner was to warn them that more regulations are inevitable in wake of the financial credit crisis.

Credit Crunch: The Beginning of the End or The End of The Beginning?

The just concluded week of April 11th 2008 ended on a down note. The earnings announcement (and considerable disappointment therein) by General Electric caught many by surprise and resulted in the largest one day decline in the GE common share price since the 1987 market crash. Perhaps one of the most widely held common stocks, General Electric was thought to be relatively immune to the on-going credit crunch due to its strong balance sheet (and "true" AAA/Aaa ratings), its diversified portfolio of short and long-cycle businesses and its truly global market exposure where more than half of its earnings resulted from activities outside of the United States. Yet even GE disappointed. The chief culprit was attributed to the global credit crisis and weaker American economy. According to The Wall Street Journal, CEO Jeffrey Immelt said, "We assume the economy is going to be very tough and remain very tough." Accordingly, he lowered GE's earnings growth rate to at most 5% for the year. That was a far cry from his pronouncement on December 12th 2007 that "10% earnings growth next year is 'in the bag'", which also partly explains the sharp share price sell off.

As readers of this Insights section many recall, Toomre Capital Markets LLC ("TCM") has been warning that this credit crunch triggered by the American subprime mortgage default crisis will take far longer to work out than many in this near-instantaneous world of communication might fully appreciate. Many in the financial markets are buffeted by the 24x7 news cycle and feel compelled to react to the latest change(s) in this or that stock, credit, commodity or foreign-exchange price. Is it any wonder then that volatility as a whole as sharply increased from early 2007 levels, many are now decrying "complexity" and most are extremely fatigued? This credit crunch will take yet further time to work out. The key question is, though, Are we at the beginning of the end or just at the end of the beginning of the credit crisis?

Those Who Bury History Are Doomed to Repeat It

Back during the last significant mortgage crisis (S&L liquidations by Resolution Trust Corporation) in the 1989-1991 period, Lars Toomre followed Lew Glucksman and Larry Fell from Lehman Brothers to Primerica where he headed what then was known as Smith Barney's mortgage-securities trading department. As Lars has described since, it was much akin to moving from a battleship to a small destroyer in the midst of perhaps a once in a century cyclone.

At that point, the Capital Markets division of Smith Barney was not prepared to take on tens of millions in positions, let alone the hundreds and even billions positioned by its larger broker/dealer brethren. As a result, there was a significant effort undertaken to upgrade the mortgage areas procedures, systems and people. Aldon Hynes, for instance, quickly joined Lars where he single-handedly assured that the first LAN was installed on the trading floor and each trading professional had a connected computer on his desk. With the demise of Drexel Lambert in the early months of 1990, several mortgage researchers joined Smith Barney, including Chris Schorin and Linda Lowell. Although we subsequently went in different directions, their research then was and has continued to be quite good.

On April 9th 2008, Linda Lowell published a piece entitled Viewpoint: Those Who Bury History Are Doomed to Repeat It. Her "perspective – that's one with over 20 years in MBS/ABS research — is the fact that, by abandoning the Great Depression as the worst-case benchmark and shifting to models based on contemporary mortgage performance, the ratings companies helped create the current house price crash and credit squeezes that are routinely compared to the Great Depression." This article is a great review of how the rating agencies came to create mortgage credit rating scenarios and is well worth reading.

Some readers may recall that Toomre Capital Markets LLC ("TCM") addressed the issue of the rating agencies in the post Bond Rating Agencies Get Subpoenas. The reader might want to reference both articles as they reflect on the UBS structured product research report Linda Lowell references at the end of her article to answer the question "Which rating company's ratings are most reliable?" According to UBS, the rankings are Fitch, S&P and pulling up the rear Moody's. Somehow TCM is not at all surprised that Moody's – which always has seemed to put commercial interests at the forefront of accuracy – still lags the other rating agencies.