we're just expected to know why. >> so market share mattered. in a nutshell. >> for various reasons >> to various people higher up. >> they wanted to know why we're not on certain accounts. >> if you look at the email, look at exhibits5 talking about market share. . .

>> market share mattered to him. >> mr. chairman, i would say yes. he was saying that that was a point of how he was believing being considered for the implementation. >> it mattered. preserving market share mattered. isn't that what he was saying point-blank? >> that was his interpretation, yes.

could i clarified? >> you can try to clarify. i am just reading the words. something should have been released months ago. if we did -- if we did not have to massage the numbers to preserve market share. isn't that clear? >> there are two points that i would make related to this. there are people with client focus on the e-mail. market share would be an impact with relation to that. but also, -- >> it mattered to them. >> yes. this e-mail isç to the analytic managers. >> yes. the analyst. it was transmitted to the analyst. market share was important.

>> it was a factor at that time. yes, mr. chair. >> pretty clear? >> i am reading the words and i cannot pretend to know what frank was thinking when he was saying that. >> forget what he was thinking. it is pretty clear. >> you just repeated them. >> would you say they were pretty clear? >> with the caveat that i do not know what he is thinking when he says it. just the words themselves, yes, there clear. >> -- they are clear. >> we heard from richard michalek this morning that there was a dramatic change in culture at moody's led by brian

clarke saison and that they movd away from a more analytic, academic environment. did you hear that testimony? did that trouble you? >> id did trouble me that that was his view, yes. >> he testified that some of the bankers have complained to brian clarkson and that he was asking too many questions. it wanted him to be removed from their deal reviews and they got their wish. did you hear that? >> i did not think he heard them say that they got their wish. >> he said he was taken off the case, right? >> i do not know of a case where he was. >> you did not hear him say that he was no longer to work with a couple of banks? >> in fact, he worked with at

least one of those banks. >> did you hear him say that he was taken off the case with those two banks? taken off the client list for those two banks? >> i did listen to this testimony. i do not recall. >> was it true that he was not told -- told not to work with one or more banks? >> i am not aware of that. >> were you there the time? >> i was there the time. >> so you were not aware that he was restricted in any way from working on cdo deals with certain banks? >> i was not aware of that. we had a contentious relationship with most of the investment banks that were out there. there were many times when it would be requested to remove an

analyst for a transaction or that they not be put on the next transaction because it was a contentious relationship. that happens quite commonly. we did not make it a practice to remove people from transactions. >> did you ever do that? did you ever remove a person from a transaction with particular banks because of complaints from that bank? >> not because of complaints. because of timing. >> the following conversations with the banks, did ask -- when they asked for a removal of someone, did you accommodate that? >> there would be cases where they would ask because of the timing that the analyst told them that they needed to be able to work on a transaction because their plane was full. at that time, i would get somebody else on the transaction. >> it was only a complaint that

the analyst was not moving quickly enough. >> it would be because they were not able to start or work on the transaction. >> that complaint came from the banks? >> it usually came from the banks. however, it could come from the analyst. >> you never heard from a bank that they really would prefer you to remove somebody and it was not working out well with that person. it always related to that person not having time? >> no. we did get complaints from banks. >> but you never accommodated that? >> no, we did not. we would emphasize that the decisions were made on the committee basis. we would keep that analyst on. i may go to the analyst to find out what the issues are. i did not remember an instance where it took somebody off because they -- because the bank complained about their performance or because they were

upset about some of the things they have said. >> you are telling us under oath that you never removed somebody because of a conflict between that person and the bank? >> i cannot remember an instance where i did. >> you do not remember? you are not denying that happened? >> i cannot remember an instance where i did that. >> how about personality conflicts? >> there were cases where transactions would occur. a lot of transactions could be very contentious. we typically had a couple of analyst who worked on transactions which certain are rangers said they understood the transactions. but sometimes those relationships could get very contentious and abusive and sometimes, for the next transaction, i would not put them on it. from the perspective of protecting the analyst. the relationships could get very

contentious and abusive. >> now you are protecting the analyst from abuse. is that it? >> to the extent that we thought that the discussions could get -- that somebody was getting yelled at or that the discussions were getting very aggressive. it was very difficult. we did not necessarily want to put them on the next transaction. >> the bank got mad enough at the analysts that was contentious enough that you might tell the analyst, we are removing you for your own sake. >> not during a transaction. >> for the next transaction. >> we could do that in other cases and brought in more senior people. >> so you could remove analyst for that reason. >> not removing them from the transaction. >> no, the next transaction from that bank. >> we made a sign that to another person. -- we may sri and that to

another person. -- we may assign that to another person. >> why would you not just tell the banker, and knocked it off. >> we did. >> so you stop your relationship with bankers based on their views? >> we would ask them to -- euille >> did you ever tell them, we're not going to do any more credit ratings for you because of the abuse to our analyst? >> i do not remember what we did. i did not think we did. >> do you consider that pressure from banks? >> there was always pressure from the banks. >> that type of pressure to remove analyst? >> there was always pressure

from banks, including that kind of pressure. >it was our job as managing directors to push back against that. >> your testimony is -- you are shifting around here a little bit. i want to let you know that. first, you said you would only do because the time. that he would not have somebody assigned to a particular bank. now you are saying, you did not remember. now you are saying that yes, you might have not assigned a particular analyst to a particular bank for the next transaction because of that kind of heated conflict between the two. i want to let you know the way your testimony comes across. it is very, very unsatisfactory.

>> if i could clarify, to me, when you say remove -- >> you did not assign somebody to that bank for the next transaction because of that conflict. go are you talking to here? -- who are you talking to here? >> i am steven ross. >> thank you. i want to clarify the difference between removing somebody in the middle of the transaction in removing them -- purses assigning someone to the next transaction. >> you did not assign them to the next transaction because of that conflict. >> because of the conflict or because of what happened during that relationship. >> the bank got their way. did not a sign that person to me from now on. the bank their way.

for the next transaction. >> that was something that was asked of us quite often. >> any sometimes did it? >> it would depend on how we felt about how the analyst felt about the pressure and the relationship. >> you sometimes did with the bank asked you to do, which is not to assign that person for the next transaction? >> not the benefit of the bank, no. it was for the benefit because we felt that our analysts were being abused and we did not want that. i>> the bank got their way. they succeeded. >> they may have succeeded in that instance, but it was not for their benefit. >> at moody's, there was a man

named andy campbell. does that strike a bell? take a look at exhibit 24b. this is attached to this cover sheet from mr. mcdaniel to himself for his file. this is a long memo about credit policy issues at moody's. it looks like it came at about october of 2007, exhibit 24b. çare you familiar with this? >> i am not. yuri yoshizawa, we were

advised by moody's chief credit officer that it was common knowledge that ratings shopping occurred in structured finance. investment bankers saw ratings from credit rating agencies and who would give them their highest ratings. would you agree with that? >> i believe that it does exist, yes.

>> is -- did the same thing exists in your area? >> yes. >> there would be no reason to shop. >> because you were doing surveillance, that would not be applicable. >> yes. that is correct. >> whenever s&p may criteria change to its model and that change was more conservative than the previous model, did s&p three test the old deals to see if there structure still passed for breeding purposes? >> traditionally not. -- for reaching purposes? >> traditionally not. >> if you take a look at that

exhibit 5, i do not think i asked you about this memo. i think i talk to susan barnes about it. in this e-mail, are you familiar with this evil? >> -- this e-mail? >> not really. i am just reading it now. >> let me read it. we first reviewed 6.0 results a year ago, we saw the subprime holiday numbers going up and that was a major point of contention. version 6.0 could have been released months ago if we did not have to massage the subprime numbers to preserve market share. are you familiar with version 6.0? >> naturally, senator.

we did not really, senator. >> that was not something that you had dealings with? >> the situation was different. on the new deal size, they are reading transaction by looking at certain information. i have the luxury of getting monthly runs and seeing what the actual delinquencies were. i could measure it against the actual information. >> this was not relevant to your work during your surveillance? >> i would not say that. at times, if we had certain information -- there is certain information that you can get

when you are doing new transactions that you just do not have once the transaction has been issued. if i could score -- a fico score you'd get from the banker. it was a difficult thing to get on a regular basis. if the house was sold and refinanced, it was very difficult to get current loan value information. >> ok. as far as if you take a look at exhibit 45, please. this is an e-mail sent to you in june of 2005. this is a mortgage broker writing new saying, i saw you today on cnbc.

i am afraid of the seeds of destruction. i have been a mortgage broker for the past 15 years. i have never seen such a lack of attention to low-risk. our present housing bubble is from money-supply by -- the biggest perpetrator is washington mutual. the list of what washington mutual was all about. -- the list of what washington mutual was all about. per video is the purchase of another highly leveraged secure sized bank. -- prodi and -- providian.

they approve the buyers would purchase loans were the only payments represented -- these are interest only payment sprit we need to put a stop to this madness. did you know the person who wrote this? did you know that person? >> no. >> this is just an e-mail that you got from somebody? >> i believe so, yes. >> key sure put his finger on -- he should put his finger on wamu. you've raised s&p for reasons that were like this. did you not read it dealing >> yes, we did it in the middle of 2005, what precipitated was that

we increased our credit enhancements. >> the subprime was not performing in the first part of 2006. >> it started to perform a little different, but from a delinquency perspective. >> does that mean worse? >> yes. >> these are some of the factors that led to a major model change in july of 2006, according to the testimony that you gave the senate banking committee in april of 2007. this model change resulted in more protection against loss, so-called credit enhancements. they increased by 50% as compared to deal degraded in the first half of 2006 and during 2005. is that correct? >> yes. >> moody's also increased its

credit enhancement of its model by 30%. is that correct? >> i do not know. >> your model that you were using, was that increased by 30%. ? >> i am not aware of how the rmbs model was changed. >> you had better data about how subprime would be paid in the future and that would allow you to better predict how deals for it if you had used the new model to reevaluate existing securities, it would have resulted in downgrades for many of those securities. is that correct? if you had use that model. >> at that time? >> it would have resulted in downgrades for many of the

securities. >> it would have ended up with different ratings being issued at that time, yes. >> either of your companies used the revised model? to reevaluate the existing rmbs securities? you did not use this revised model to reevaluate existing rmbs securities. is that correct? >> we did not. >> even though those were all under surveillance? >> that is correct. >> were you familiar with that decision? >> yes. we have the luxury of the current information on a monthly basis. >> you did not have resources. is that correct? to apply those revised models to

reevaluate all of the existing securities. it was also a resource issue. is that correct? >> no. >> it was not a resource issue? >> no. having the ability to look at the actual delinquencies and monitor them to see what percentage turn into losses was something that i did not have to be predictive. i could see what was happening. >> take a look at exhibit 62. at the top of page two, this is a standard & poor's memo.

did you ever see this memo before? chairman -- , i have not seen it since 2005. >> it can cause existing ratings to change. >> he worked in the surveillance group. >> how do we change existing deals? are there material changes that can cause existing ratings to change? history has been to only real review a deal under new assumptions when the deal is

flat for some performance reason. he said, i do not know the situation where there were wholesale changes to existing ratings. the two major reasons why we have taken that approach is a lack of sufficient personnel resources. that was not true. that was not the reason? lack of personal resources? -- personnel resources? >> mr. chairman, i cannot speak to the specific. >> no, but you disagree with that. is that correct? that was not a reason why that new model was not applied to the existing deal. >> in 2005, i did that no that resources -- >> did you ever have a problem in terms of existing resources

when it came to your job of surveillance? did you ever raised the issue? >> yes, i did. >> tell us about that. >> we started to see the increased delinquencies, we switched to doing the interviews on the 2006 and 2007 transactions. we worked in conjunction with a number of people throughout the organization and criteria, data, management, the new deal side. in new york, i have the luxury -- i had the luxury of moving targets with attrition and new hires and termination, etc. anywhere from 100 to 125 people

reported to me. when i needed additional resources, i would shift people around to cover that. at the same time, i would make request for additional resources for the future so that i could adequately cover all of our workload. >> you did not get those resources? >> i got resources. >> for the adequate? >> -- were the adequate? >> i would say they were adequate to do the job at the time is needed to be done. >> take a look at 86.

>> he was the head of the -- >> she was asking for help. "she was asking for resources. >> you told her, they would be coming later on. >> i was identifying a potential avenue where we could get additional resources. >> she was asking for additional resources, would she not? >> yes. >> you write, "you should be

getting four or five new associates and continuing to get them going forward. that might help. " her response was, "they will be a great help, but they will not start until august. " she needs help now, she's telling me. you are telling her that she will get a few in august. then she says, 'let's talk about anything we might be able to doç in the interim. the ratings are not going to hold through 2007. " you are supposed to make sure those ratings stay. he asked me to begin discussing

taking rating actions earlier on the poor performing deals. i have been thinking about this for much of the night. we do not have the resources to support what we're doing now. you thought the resources were adequate? she is telling you that you do not have resources to support what you're doing. a new process without the right support would be overwhelming. what was your response? >> my response was to request resources. >> did you get them? >> i got some. >> did you get what you needed? >> it depends on the job. on this particular job, i feel we were adequately covered. >> were there some jobs were you were not adequately cover? in your judgment? >> i would tree offers according

to volatility. >> that means something -- tree iage according to volatility. it >> it means that you were not providing adequate resources where they were needed. >> ernestine warner is in charge of the residential mortgage group. her job is to inform me when she needs resources and what those resources are. this e-mail is for doing her job. what i am doing is now trying to address that request. to that is what she says in the interim. i am looking to move the entire associates class over. i understand we're talking february to august. in the interim, she is asking for help with the head of the

group. i am also shifting people from other areas. this is an addition to the data area and the deal side, if there was the luxury of people on -- available. to go out and higher, you're looking at at least a six month learning curve, such that she needs the help now. i had to address this situation at that time by shifting people over and by making sure that we can help now. it i think you get the resources -- did she get the resources that cheated when she needed them? >> sadly enough, your chart shows the amount of downgrades that we had to do to make that rating be appropriate.

at that particular time, i would say that i was never satisfied with anything. that typically it was the budget process. i would request and document the need for those requests and then we would get them. for this particular -- at this particular time, and knowing what i did in shifting over personnel, this was resolved. >> were the resources adequate? she was warning you that a storm was coming. we need resources. now. you are telling me that she got the resources that she needed? that is what your testimony is

under oath? >> yes. which increased our staff, as i said i had over one and 15 people -- 115 people at any given time. >> take a look at exhibit 84, if you would. second page. in light of the current state -- this is ernestine again.

"i think it would be very beneficial for the surveillance team to have the work done by the thames to continue. -- temps. there are currently 1000 deals. " is that satisfactory to have that kind of a backlog? >> no. for data loading and did a correction, i would use our affiliate' company and have them do a lot of the data loading and data collection. the people she is talking to our people in the group. she is seeking additional help in loading data. >> you had to borrow staff for new ratings, i understand.

is that correct? >> yes. at different times, we shifted. >> how about at that time? >> in december of 2006? in february, we were working jointly. >> retaking staff -- you were short of staff the same time they were short of staff. you're both short of staff. >> yes, mr. chairman. everybody was working very hard. >> were you both short staffed? >> you are always asking for more resources. >> this was all routine? >> no, not at all. >> you needed more staff. you saw something coming. >> yes. >> did you also need more staff? did you make request for more staff? did you have to pull staff from

other parts of the operation? >> yes, we did. alkn general. i really keep up with what is gog withhe subime mortgage performancere in g. wasng ptty wl. can speo . an moninesueies