A lot has been said recently over the much-maligned traditional rating agencies: S&P and Moody's. The rampant conflicts of interest over the past decade which everyone on Wall Street was all too aware of, somehow were a shock to politicians such as Barney Frank. In fact these very conflicts have been proposed to be the root of the credit and mortgage crisis (one can see how that is not a futile argument: if an excel workbook crashes your PC if you try to assume declining housing prices someone should have raised a red flag somewhere). Of course, that is a naive conclusion but not entirely without merit. In fact, odds are that the next time the market swoons by 40-60%, Barney Frank will refocus populist anger at exactly these rating agencies which have so far managed to escape relatively unscathed.

But the crucifixion clouds are gathering.

The administration realizes that the only purpose for keeping rating agencies alive is to promote the AAA fallacy which is necessary for TALF inclusion. Of course, TALF is critical to make sure when the CRE debt rollover occurs, there is some method of securitization (hopefully an improvement on the abject failure that the first round of TALF CRE bids proved to be). However with recent overtures by the likes of S&P which indicated it would downgrade approximately 80% of all existing CMBS classes, the "rating agency issue" quickly became the weakest link in the administration's plan for CRE bail out. The solution: quickly add many new redundant rating agencies in order to neutralize a legacy player getting a "conscience attack" in the middle of the biggest CRE rescue operation ever attempted. This explains why companies such as Realpoint and DBRS were recently added to the roster of Nationally Recognized Statistical Rating Organizations (NRSROs). It also explains why CRE cash flow modelling specialist TREPP was retained by the NY Fed as a collateral monitor. But with new expansion, comes new diligence (or lack thereof) and new conflicts of interest that the administration will claim are not an issue... until it is too late.

In a piece focusing on some these "nouveau" entrants, Anonymous Banker takes a long hard look at TREPP. His observation:

How many Commercial Mortgages will Chase Bank be allowed to unload through TALF, a government program that has hired as its collateral monitor Trepp LLC whose UK Parent company utilizes, as their stockbroker, a company that is owned 50% by JP Morgan Chase.

Does anyone else see this as a conflict of interest?

While the TREPP conflict is somewhat moderate, Zero Hedge applauds this fact finding effort as pointing out the truth behind the scenes will make its potential abuse that more problematic (but unlikely to stop it).