“Over time, disagreements with analysts were just smoothed out. And it was no longer the rating agency which always won,” says [Sylvain] Raynes, who left Moody’s to set up his own credit analysis consultancy. “The banks won. Now the modelling is done by the street.”

The agencies were inundated with a huge volume of new structured finance deals that they were being asked to rate. At Moody’s, the flipside to the huge revenue growth was a high-pressure work environment. One analyst recalls rating a $1bn structured deal in 90 minutes. “People at the rating agencies used to say things like, ‘I can’t believe we got comfortable with that deal,’” says Raynes. “People talk about moral hazard at the banks, but the moral hazard for the rating agencies is extreme.”

Read the rest of this full-feature article at Financial Times, “When Junk Was Gold,” by Sam Jones.

The collapse of the Tacoma Narrows Bridge, due to unforeseen resonance effects, is more than a watershed in the history of bridge design and civil engineering. It is an object lesson in the need to fully understand a problem before designing its solution.

The Tacoma Narrows Bridge, November 7th 1940

Bridges and airplanes represent decades or centuries of know-how handed down to us in the form of physical theories and engineering standards. The same would be true for finance, if we did not have such a high tolerance for violating the trust and wasting the wealth and savings of others.

The main reason why the architects of deal disasters not only survive their mistakes but go on to create new ones is that deal “blow ups” lack tragic and visible consequences. But, if fumbling financiers were held as accountable for their structures as fumbling bridge-builders are, the field of finance would soon become a science as precise as bridge building.

Accountability is only possible where there is feedback. Financial feedback is not measured in terms of body count or ruins at the bottom of Puget Sound. It consists of broken promises, wasted money and squandered opportunity. Financial loss can only be quantified in light of the original promise to pay. That promise can only be understood by understanding the deal itself.

The way of the deal has never been specified formally because the question of the deal has never been posed, let alone answered. The question of the deal is not the most important question in finance. It is not even the most significant question in finance. It is the only question in finance. It is the reason why you are here.