The internal email archives of ratings agencies and banks have been thrown open as part of a major government investigation, demonstrating the risk appetite of large Wall Street institutions before the global economic crash.
Frank Parisi, managing director of the global structured finance unit at Standard & Poor's, wrote in an email as early as 2005 that the ratings agency chose to "massage" sub-prime mortgage numbers in order to "preserve market share".
Parisi was responding to an email stating that the agency's ratings model needed to be adjusted to account for the higher risks associated with subprime loans, which are widely seen as a large factor in the crisis as struggling homeowners failed to pay their debts.
A month later, Parisi wrote another email, reiterating that he rejected the thinking behind Standard and Poor's actions. "Screwing with criteria to 'get the deal' is putting the entire S&P franchise at risk - it's a bad idea."
The emails emerged in a report by the US Senate Committee on Homeland Security and Governmental Affairs, which also made public "aggressive" emails by banks urging traders to grow profit through causing "maximum pain" in the market.
The report concludes that the most immediate cause of the financial crisis was the July 2007 mass ratings downgrades by Moody's and Standard & Poor's that exposed the risky nature of mortgage-related investments that, just months before, the same firms had deemed safe.
"The result was a collapse in the value of mortgage related securities that devastated investors", the Committee wrote in its report. "Internal emails show that credit rating agency personnel knew their ratings would not 'hold' and delayed imposing tougher ratings criteria," in order to "massage" figures, it said.
In August 2007, Eric Kolchinsky, a managing director of Moody's collateralised debt obligation analysts, sent an urgent email to his managers about the pressures to rate more new CDOs in the midst of the mass downgrades. "This is unacceptable and we cannot rate the new deals in the same away [sic] we have done before," he wrote. "[B]ankers are under enormous pressure to turn their warehouses into CDO notes."
Moody's had not provided comment at the time of writing. Standard & Poor's said in a statement that it was "disappointed by the performance of our ratings on certain mortgage-related securities". The actions it took to downgrade products in 2007 and 2008 "reflected the unprecedented deterioration in credit quality, but were not a cause of it", it said. The company insisted it was improving transparency and accuracy.
The report highlighted conflicts of interest and "heedless risk-taking" among banks, as well as failures of federal oversight.
For the 635-page report, the Committee trawled through thousands of emails and memos from ratings agencies, government bodies and Wall Street institutions including Goldman Sachs and Deutsche Bank.
The latter two came in for particularly heavy criticism, as the Committee said it would refer evidence about them to the Securities and Exchange Commission for possible criminal investigations.
Banks had mis-sold mortgage-backed securities and deliberately misled shareholders and the government, according to the report, which examined their emails and interviews with executives.
"In my judgement, Goldman clearly misled their clients and they misled Congress," said Carl Levin, the chairman of the Committee.
The report found "troubling and sometimes abusive" practices by banks.
Goldman Sachs assembled and "aggressively marketed" to its clients "poor quality CDOs that it actively bet against by taking large short positions in those transactions" as clients lost money, the report stated.
Emails sent by a senior Goldman Sachs employee - Michael Swenson, an executive in the fixed income trading division - show the investment bank's traders were urged to "kill" rival investor positions, and cause "maximum pain". He wrote that "this will have people totally demoralised".
Goldman Sachs said in response to the report: "We didn't have a massive net short position because our short positions were largely offset by our long positions."
It said it was improving transparency and standards, and added: "While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee."
Deutsche Bank's top collateralised debt obligation trader, Greg Lippmann, referred in email messages to a $1.1 billion company product as "crap" and "pigs". In other emails company executives said they had rushed to sell the product "before the market falls off a cliff", the report stated.
Lipmann had even referred to some CDO products as a "Ponzi scheme", a comment he later withdrew.
Deutsche Bank said: "Despite the bearish views held by some, Deutsche Bank was long of the housing market and endured significant losses."
Managers at collapsed bank Washington Mutual also came in for heavy criticism. The bank had "aggressively issued and sold high-risk mortgages to Wall Street, Fannie Mae, and Freddie Mac, even as its executives predicted a housing bubble that would burst", the committee wrote.
Internal emails at Washington Mutual revealed its IT systems had struggled to monitor the hundreds of billions of dollars of new mortgages it issued each year. The company had also had great difficulty integrating the IT from scores of business acquisitions, it noted.
A Washington Mutual IT programme aimed at addressing the problem was eventually described by company president Steve Rotella as "a complete failure" that the bank "had to write off".
Regulatory body the Office of Thrift Supervision was criticised in the report. "Over a five-year period from 2004 to 2008, OTS identified over 500 serious deficiencies at Washington Mutual, yet failed to take action to force the bank to improve its lending operations and even impeded oversight by the bank's backup regulator," the report stated.
Levin said: "Our investigation found a financial snake pit rife with greed, conflicts of interest, and wrongdoing."
The report concluded several major changes had to be taken by the industry. Steps included a strong implementation of the new restrictions on proprietary trading and conflicts of interest, improvements in transparency, and action by regulators to rank credit rating agencies according to the accuracy of their ratings.