US probes motives of rating agencies
Source: Agencies |
August 19, 2011, Friday
|
Print Edition
Print Edition
THE US Justice Department is investigating whether credit rating agency Standard & Poor's improperly rated dozens of mortgage securities in the years leading up to the financial crisis, the New York Times has reported.
The investigation began before Standard & Poor's cut the US credit rating this month.
The newspaper claims the Justice Department has been asking about instances in which the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers.
If the government finds enough evidence to support a case, it could undercut S&P's longstanding claim that its analysts act independently from business concerns. It is unclear whether the Justice Department investigation involves the other two major ratings agencies, Moody's and Fitch.
S&P and other ratings agencies reaped record prof its as they bestowed their highest ratings on troubled mortgages, which made the loans appear less risky and therefore more valuable, but failed to anticipate the deterioration of the housing market.
Companies and some countries - but not the US - pay the agencies for their rating, the financial market's version of a seal of approval.
Critics say the business model is riddled with conflicts of interest as rating agencies might make their grades more positive to please their customers.
Representatives of the Justice Department and US regulator the Securities and Exchange Commission declined to comment on whether they are investigating rating agencies.
The investigation began before Standard & Poor's cut the US credit rating this month.
The newspaper claims the Justice Department has been asking about instances in which the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers.
If the government finds enough evidence to support a case, it could undercut S&P's longstanding claim that its analysts act independently from business concerns. It is unclear whether the Justice Department investigation involves the other two major ratings agencies, Moody's and Fitch.
S&P and other ratings agencies reaped record prof its as they bestowed their highest ratings on troubled mortgages, which made the loans appear less risky and therefore more valuable, but failed to anticipate the deterioration of the housing market.
Companies and some countries - but not the US - pay the agencies for their rating, the financial market's version of a seal of approval.
Critics say the business model is riddled with conflicts of interest as rating agencies might make their grades more positive to please their customers.
Representatives of the Justice Department and US regulator the Securities and Exchange Commission declined to comment on whether they are investigating rating agencies.
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