Credit Rating Agencies Grilled On Capitol Hill
Conflicts of interest and gross incompetence were just two of the descriptions that lawmakers used to characterize credit rating agencies for their off-base assessments regarding the risks of Wall Street investment products backed by subprime mortgage loans.
At an Oct. 22 meeting on Capitol Hill, the House Committee on Oversight and Government Reform had harsh words for Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, with one lawmaker quoting from a compilation of e-mail messages sent by an S&P employee that said “a product would be rated even if it were structured by cows.”
The cow comment was just one of several accusations levied by members of Congress throughout the day-long hearing in which the three credit rating agencies were grilled on how and why they assigned top AAA ratings to complex mortgage-related securities without first thoroughly understanding the risks of the products. Later, a number of those products turned out to be totally worthless.
The answer may have to do with money. Moody’s Investors, Standard & Poor’s, and Fitch all raked in huge profits by giving various Wall Street products superior ratings. During the Oct. 22 testimony, Henry Waxman, who is chairman of the House Committee on Oversight and Government Reform, said total revenue from the three firms doubled from $3 billion in 2002 to more than $6 billion in 2007.
Meanwhile, investors who relied on the so-called “objective” ratings of certain financial products lost millions upon millions of dollars when the agencies’ assessments proved to be categorically wrong.
Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.
