Sci-Fi in The Financial World

Moody’s will be adding a “(sf)” indicator to all its structured finance ratings. It makes perfect sense when you think of the kind of scary sci-fi thrillers that could be made about the credit crash:

It Came From The Lowest-Rated Tranche

Creatures From The Sub-prime Lagoon
 

Monsters From The Planet CDO
 

The Off Balance-Sheet Abyss

…or you could just think of these instruments as the kind of thing where they were probably defined by aliens from another planet who spoke some strange language that consisted of only acronyms.

The scoop from FTAlphaville:

In case you’re wondering why Moody’s is adding another acronym to its ratings system, we can tell you that a nominated structured finance label is one of the requirements of new European regulation for credit rating agencies. Basically any agency that wants European registration needs to come up with a structured finance symbol to distinguish structured finance ratings from the ratings of other securities.

It’s part of a European attempt to strengthen the (sf) aspect of the ratings business.

And the regulation does have some useful things in it. For example, under the new rules agencies should not be able to make recommendations on how securitisations are structured. That’s something which occurred quite frequently pre-financial crisis, when agencies shed their traditionally-passive role in favour of actively advising clients on how to structure deals to achieve the best possible rating.

But, structured finance symbol aside, some of the European regulation really ticks the `odd’ (or at least, `redundant’ ) box. For instance, the directive recommends agencies that rate securitisations have at least one supervisory member with “in-depth knowledge and experience at a senior level of the markets in structured finance instruments.” Well, you would hope (pray?).

So Europe is just now getting around to recommending that there be ONE supervisory member who knows what’s going on in structured finance. You’d think they wouldn’t need to say that, but… maybe this means maybe aliens were rating this stuff all along.

Incidentally, though this “sf” thing is pretty funny, we were hoping for “sc” (structured by cows) as the designation.