The movie shows various cases of potential illegal practices. The first most illegal case witnessed in the American economic sector based on the movie captures improper ratings of CDOs. During the 2000s, all the bank rating agencies offered many CDOs with certificates showing their eligibility to operate as AAA rated organizations. This however was not based on the correct legal requirements and test to validate the essence. As a result of collusion and corruption within the country, most collateral debt obligations were able to acquire permission to give out higher amount of loans to the public.
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During the whole illegal closet, many individuals were given higher figures of loaning than they could not manage to repay. Between 2001 and 2007, the ratio of investment bank borrowings vs. the bank assets was extremely unprecedented. The collusion which led to this problem comprised of three rating companies and five investment banks. By 2006, about 4,000 AAA-rated instruments rose from just a bunch realized in 2000. In the long run, the inflation rates went high and many banking sectors forced into receivership. Most of the markets utilized by CDOs came to a closure as a result of the poor rating of financial lending institutions.
The main rule of law that was violated by the three rating agencies during their process of licensing CDOs to class AAA captures on the procedures used. According to business law captured in the lending and rating formalities, there is a well laid down procedure on ratings. Based on the legal document, it is clarified that for any rating agency to offer a new lending rate to an organization, some particular vetting procedures must be followed. In reaction to part II of the movie, the basic legal procedures for rating agencies should start by an official application from the client. This application should comprise of a signed agreement covering the rating procedures. The rating company and the clients would then discuss at length on serious matters pertaining to the future cooperation during the process.
The second law requirement of the proceedings involves the official formation of a group of two to three people charged with the responsibility of controlling the entire credit rating process. After that, all the relevant information is from the client in a well drafted legal document. Immediately after this, three consecutive meetings and consultations should be made between the client managers. During all these meetings proper minutes must be taken for legal validation.
In response to these, three major analyses are then performed to verify total qualification of an organization to the right rating. The first analysis captures the qualitative abilities of the organization based on the financial plans and SWAT analysis. Secondly, quantitative analysis which is based on financial positioning of the organization takes charge. This captures the external factors of profitability and development tendencies. The last analysis captures on the legal correspondents with the legislation. The next stage involves the rating committee, which prepares a professional rating report. The final ratings are then published and taken to the client. In case the client feels not satisfied with the agencies’ ratings, it can proceed to appeal within the first ten days.
In relation to the legal process of seeking new credit rates, all valid documentations should exist at every stage. It is quite evident that the three rating agencies showed in the movie did not follow the right procedure. For this reason, none of them would be at a position of providing concrete evidence for the AAA rating license. Based on these facts, winning these agencies in the court of law would be inevitable.