The Case Of Moody’s
Moody’s credit rating and the subprime mortgage meltdown.
Case summary "Moody’s Corporation, often referred to as Moody's, is an American business and financial services company, the holding company for Moody's Investors Service (MIS), an American credit rating agency", and Moody's Analytics (MA), an American provider of financial analysis software and services. Moody’s is the oldest credit rating agency in the world, founded in 1909. Moody's focus business model was in the area of rating bonds for businesses, especially the possibility of their return. This rating then allowed investors to evaluate the risk of their chosen efforts. However, eventually, Moody's business model changed. They began rating more than just
They chose to allow their credit ratings to be bought by the highest bidder. This allowed for mortgage lenders to essentially become bottom-line driven in pushing the envelope to issue more and more loans. Instead of being enticed with the return capital from clients purchasing favorable reviews, Moody’s could have taken a more ethical and responsible approach to the increasing trouble on the horizon. With WaMu and Washington Mutual pressing their agents to issue more and more subprime loans, the number tripled from 11% in 2003 to 33% in 2005. Moody had a conflict of interest conflicting when he was in competition with other credit rating agencies like S&P and Fitch, so in order to get the leaders to use their services, Moody's had to lower the ratings. The main conflict was that the same institution that issued the bonds it rated paid Moody’s. The core of Moody’s business was rating the safety and security of the bonds issued by companies, government, and the public agencies. Moody’s main goal was to satisfy the issuer of the bonds who naturally would seek the highest possible rating, by doing this could conflict with the interest of the investors who will seek a naturally accurate rating. Also, Moody’s was asked to rate the creditworthiness of various tranches of the mortgage-backed security. Where invested had no idea how to assess the safety or security because most products
It needs to be part of the process starting with the mortgage and carrying through to the investors. The structure of the credit rating industry should be evaluated and public policy made as to what will and will not be done and how each step will be carried out. Public policy will have to be in every part of the process to ensure that each step is transparent enough to see when something is fishy or unbelievable. The management policies and practices will have to revert to those of the pre- "housing for everyone fad". The policies will have to ensure the person can qualify for the loan, and possesses the necessary credit, down payment and income to prevent the default on the loan. Rating companies like Moody's need to tightly regulate and revert back to the company that cannot change for the ratings they are giving. Then, it would be of no benefit to lying about the ratings because they would have nothing to gain. It will take everyone doing something to ensure no more subprime meltdowns Now once lenders are able to establish that a person can within good reason payback their loan, we still to keep people from making profits against debts. This is where the issue began in the first place. In a normal situation, if a person takes out a mortgage from a bank, defaults on the loan, the bank keeps the home and can resell it later etc. And it should stop between those two
...ancial positions of the borrowers, their lack of knowledge as well as the superior bargaining power of the lender to get the borrowers to agree to these loans. The lenders should bear the major responsibility of these loans, as they are aware of the ramifications of such transactions. The borrowers are also responsible, as they should not enter into contracts without adequately understanding the consequences of such actions. In many cases, the lenders do not provide the information that would assist the borrower in making rational decisions. There are instances when the borrower does not care about the increased penalties, they just want to get their hands on the money, and worry about the consequences later. Some borrowers just live beyond their means but once they get sucked into a predatory loan, they begin a cycle of debt that they just cannot get out of.
This memorandum shall provide an in depth analysis of Target Corporation’s performance for the most current for the year 2014. To obtain a better understanding of Target Corporation’s performance the following categories shall be addressed: Preliminary analytical procedures, Accounting policy efficiency and reliability, Evaluation of Disclosure Controls, Evaluating Company’s technology system and its Risks, Substantive Procedures, Payout ratio in the Target Corporation financials, Fraud Considerations and Extended Procedures.
Target must compete vigorously and fairly in the marketplace using our independent judgment to make the best decisions for the Company.
Costco Wholesale Corporation was an uncommon type of retailers called wholesale clubs. These clubs differentiated themselves from other retailer by requiring annual membership purchase. Especially in case of Costco, their target market is wealthier clientele of small business owners and middle class shoppers. They are now known as a low cost or discount retailer where they sell products in bulk with limited brands and their own brand. The company is competing with stores like Wal-Mart, SAM’s, BJ’s, and Sears. The case begins with an individual shareholder, Margarita Torres, who first purchased shares in 1997 and who is trying to evaluate the operational performance of the business in order to make a decision rather or not purchase more shares
There was a new concept of credit nicknamed "buy now, pay later." Not long after this concept came to be, the stock market crashed. For the decades before the current housing crisis, buying homes and loaning money was a simple, but strict, affair and had two outcomes. Either the borrower could pay back the money owed, or they could not pay the money back. If the borrower could pay the money back, they could keep their house or whatever they took out the loan for.
JP Morgan being the colossal financial entity that it is, has been deep rooted into the American economy and its lifestyle. Even though the same can be
A majority of mortgage defaults that Americans used were on subprime mortgage loans, which were high-interest-rate loans lent to people with high risk credit rates (Brue). Despite knowing the risks, the Federal government encouraged major banks to lend out these loans to buyers, in hopes, of broadening ho...
In paper will consist of a blog on the interpreting Ethical Issues with Subprime Loans. According to the United States Department of Housing and Urban Development defined subprime loan “a type of mortgage loan for individuals who do not qualify prime rate loans due to blemished or limited credit histories. These loans carry a higher rate of interest than prime mortgage loans to compensate for increased credit risks (4). These loans were created to allow individuals and households with blemished or limited credit histories, modest incomes, or insufficient funds for a down payment that otherwise would be prevented in buying a house or refinance an existing home. Since the early 1990s,
Mullard, M. (2012). The Credit Rating Agencies and Their Contribution to the Financial Crisis. The Political Quarterly, 83, 77-95
Third Star Financial Services is an “un-banked” business that was built from a foundation of several money transfer operations that can be transact through an agent or an online facility since 1996. Third Star’s goal and objective is to develop and implement an enterprise architecture platform for the organization that is more streamlined and leaned with consistent policies and procedures throughout the company. A consolidated, centralized and standardized single version of the business structure and a modernize technology that can provide ease and flexibilities to their new and existing customers, in addition to their support staff and management teams.
Freddie Mac was accused of either lying or misrepresenting the facts in order to make the amount of risk they were taking appear smaller. Investigators believed that this was done in order to comfort investors. The mortgages they were talking about, the ones that were considered risky were sub-prime loans, and they were prone to failure. A lot of these people should never have been given loans with interest rates that high. It was the job of Freddie Mac to hel...
In conclusion, people have still not been held accountable for one of the largest financial collapses of all time. I think that there should be a limit on who gets qualified for any loan in order to avoid this situation again. I think that everyone who was responsible should be held accountable for what happened even if it means banks going under.
In terms of looking at how credit rating agencies affected the market as a whole, they played a role within the mortgage crisis as they gave way to a real estate credit bubble. The mortgage crisis seems to have b...
It is normal practice for financial companies to charge consumers with credit history issues higher interest rates. It is justifiable because consumers with credit history issues that have had problems paying other creditors back in the past are more of a credit risk. Mortgage subprime loans are no different. Subprime loans become an ethical issue when financial companies use unethical practices to make subprime loans just in order to make more money.
The XYZ Corporation was established in 2004 and their main office is located in Vancouver, BC. The company’s main objective is to create new innovating technology for media devices, computers, and digital music players. They deal with the design, manufacturing and marketing of the products. XYZ Corporation has been providing Canadians with groundbreaking technology throughout the years and continues to create new technology to provide others with top-level technology. Although, recently their success rate has appeared to drop rapidly due to a number of factors that will be explored throughout this case study. Their main objective is to target the problems so that they can work towards having the issues resolved as quickly as possible. If they do not take any course of action, the state of the company may be in extreme danger. This case study is designed to explore the areas of the company and discover the problems blocking the XYZ Corporation from success.