mr. mcdaniel. i think that that exhibit is -- was put together by your chief credit officer, is that correct, mr. kimbel. >> yes. that it is correct. >> he says that he disputes the quality is king, and is risk due to pressure from bankers. and, analysts and managing directors are continuing pitch by bankers, issuers and investors, whose views can color credit judgment and sometimes improving and sometimes degrading it and we drink the kool-aid, coupled with strong internal emphasis on market share, coupled with strong internal emphasis on market share, and margin focus, this does constitute a risk to ratings quality. that is his analysis. then he says, that i don't know if you follow what i was reading on page 2... continuing, analysts and mds are pitched by bankers, issuesers, investors, and this constitutes a risk to ratings quality. do you agree with that. >> as i had commented before, the observation that the -- our information sources all of -- oftentimes have points of view, whether issuers o

mr. mcdaniel, we think will have you go first followed by ms. corbet. ank you both for being here today. >> thank you, mr. chairman. i am raymond daniel, chairman and ceo of moody's corp., the parent of moody's investor services. i want to thank you to contribute today. the global financial crisis sparked unnecessary debate about the role and performance of numerous participants in the financial markets. many market observers have expressed that they did not better predict the deteriorating conditions in the subprime mortgage market. let me assure you that moody's is not satisfied and i am not satisfied with the performance of our ratings during the unprecedented market downturn of the past two years. we did not anticipate the extra barry confluence of forces that drove the poor performance of the subprime mortgages. we were not alone in this regard but i believe we should be at the leading edge of predictive opinions about credit risk. some key issues in closing the unanticipated performance include the steep and sudden nationwide decline in home prices

mr. mcdaniel, you never felt any problem during this period that what was going on?learly since you didn't see anything wrong was going to hurt the moody's plant. >> the ability to run a successful business in the credit ratings industry is first and foremost dependent on having predicted ratings. so the business success is very tightly aligned with the quality of the ratings. >> that is the point he was making. a whole business depends on this. spec and that is why the performance of the sep prime mortgage securities particularly in 2006 and 2007 is so frustrating to me as a ceo among other reasons. >> i don't see why it would be frustrating because basically what happened is we had this housing market blowout and through no fault of our own everything went south. there was nothing -- if not identified a single thing that was going on at moody's other than just you guys got caught in a bad housing market, not bad business but bad housing market. >> there are a number of things that in hindsight i wish we had done differently absolutely. >> that is really what i was

mr. mcdaniel. >> i apologize? which exhibit? >> 91. had the analysts are overwhelmed. >> as i remarked to there were definitely resource stresses that this point* in time. people were working longer hours than we wanted to and more-- of the week than we wanted them to. it was not for lack of having open positions but the pace at which the market was growing it was difficult to fill positions as quickly as we would have liked. >> did moody's reevaluate wholesale? or just certain transactions? >> we monitor all transactions. >> did you evaluate the entire cbo four nds? >> i apologize. >> you have a new metric or a new model they were using to rate new securities, will you go back and use that model on existing securities? >> it would depend. >> did you retests the old deals? >> in many cases we do and some we do not. >> standard emcor? >> there are two different processes. the surveillance group was looking at actual performance data to determine if there would be any impact to the rating. >> you did not look at the entire rating for the

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

mr. mcdaniel said, take a look at exhibit 90. this is from moody's back in 2006. if we are to remain short- staffed for another year -- or you short-staffed in a january 2006? >> we had stress on our resources in this time, absolutely. >> you are making a pretty good profit during that time, were you not? >> we were profitable, yes. >> take a look at movies in 2007, if you would -- moody's in 2007, if you would. this is exhibit 91. second paragraph, our analysts are overwhelmed. >> as i remarked, there were definitely resources stresses at this point in time. people were looking to -- people were working longer hours than we wanted them to come the more days of the week and we wanted them to. it was not for a lack of having open positions, but at the pace of the market was growing, it was difficult to fill positions as quickly as we would have liked. >> did moody's reevaluate wholesale, or just certain transactions? >> we monitor in our surveillance all transactions. >> but did you reevaluate an entire cdo or an entire r m b s? >> i apologize. i am not following.

mr. mcdaniel, you go back to 2003 and talk about the loosening of underwriting standards.hat was four years before 2007, if my arithmetic is right. there had to be some knowledge and the management of movies that there was trouble here. it did not all the sudden here that in 2007, there was a housing problem of massive proportions and you're still reading everything triple-a. -- rating everything triple-a. you're still putting up aaa bonds which in retrospect >> from 2003 on, as we mentioned, we wrote about the various concerns they had a market. at the same time, my understanding is that they were increasing enhanced levels required to get certain ratings. there were changes made to the methodology for creating a triple-a rating. i do not know about the specific practices as to how much and has been a change. that was not my area. however, i am aware that they have continually been identified and justifying their methodology. >> did all three of you here the previous panel? >> yes. >> mr barnes, the previous panel said that was not it at all. they said was lack of regulat

mr. mcdaniel, you go back to 2003 and talk about the loosening of underwriting standards.hat was four years before 2007, if my arithmetic is right. there had to be some knowledge and the management of movies that there was trouble here. it did not all the sudden here that in 2007, there was a housing problem of massive proportions and you're still reading everything triple-a. -- rating everything triple-a. you're still putting up aaa bonds which in retrospect >> from 2003 on, as we mentioned, we wrote about the various concerns they had a market. at the same time, my understanding is that they were increasing enhanced levels required to get certain ratings. there were changes made to the methodology for creating a triple-a rating. i do not know about the specific practices as to how much and has been a change. that was not my area. however, i am aware that they have continually been identified and justifying their methodology. >> did all three of you here the previous panel? >> yes. >> mr barnes, the previous panel said that was not it at all. they said was lack of regulat