Rating Agencies Were Part Of The Disaster On Wall Street

If the rating agencies were key players in the financial mismanagement that destroyed eight million jobs and threatened the world’s economy, why are they not included in the financial reform bill now before the Senate? Alain Sherter wants to know why. So do I.

This is a report from “Now” – a PBS program. In this particular episode an insider from a credit rating agency explains what happened.

Here is Alain Sherter explaining more about this ratings disaster –

The ratings agencies business model is based on a flagrant conflict of interest — they’re paid by the firms whose credit they evaluate. That makes them vulnerable to pressure from investment banks and securities issuers, which naturally want a bullet-proof rating in order to attract investors.

In the years leading up to the housing bust, Moody’s, S&P and Fitch passed out AAA ratings like candy bars at Halloween. In mid-2007 and early 2008, with the real estate market in free-fall and mortgage delinquencies soaring, they suddenly started downgrading scads of formerly top-rated securities. In January of ‘08, for instance, S&P lowered ratings on more than 6,300 and 1,900 CDOs — in a single day. Then, the deluge. The bottom fell out of the secondary market for subprime loans, and the rest is history.

Without the credit rating industry giving triple A ratings to these risky investments, the tragedy that has engulfed and continues to damage the lives of so many Americans would not have been possible.

What are these people not being called on the carpet or prosecuted for conduct that seems to many observers to look very similar to fraud?

James Pilant