- Join the France 24 community here
- Log in
Latest update: 18/08/2011
- banking - Economic crisis - economy - USA
US probes Standard & Poor’s over mortgages
The US Justice Department has launched an investigation into the Standard & Poor’s ratings agency over whether it improperly rated mortgage securities in the years before the financial crisis, the New York Times reported on Wednesday.
By News Wires (text)
AP - The Justice Department is investigating whether the Standard & Poor’s credit ratings agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis, The New York Times reported Wednesday.
The investigation began before Standard & Poor’s cut the United States’ AAA credit rating this month, but it’s likely to add to the political firestorm created by the downgrade, the newspaper said.
Some government officials have since questioned the agency’s secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations.
The Times cites two people interviewed by the government and another briefed on such interviews as its sources. According to people with knowledge of the interviews, 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.
The newspaper said it was unclear whether the Justice Department investigation involves the other two major ratings agencies, Moody’s and Fitch, or only S&P.
S&P and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable.
They failed to anticipate the deterioration that would come in the housing market and devastate the financial system.
Companies and some countries, but not the United States, pay the credit ratings agencies to receive a rating, the financial market’s version of a seal of approval.
Before the financial crisis, banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with them. These banks paid as much as $100,000 for ratings on mortgage bond deals, according to the Financial Crisis Inquiry Commission, the Times said.
Critics say this business model is riddled with conflicts of interest since ratings agencies might make their grades more positive to please their customers.
The Times said the Securities and Exchange Commission also has beeninvestigating possible wrongdoing at S&P, citing a person interviewed on that matter.
Ed Sweeney, a spokesman for S&P, said in an email to the Times: “S&P hasreceived several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.”
Representatives of the Justice Department and the SEC declined to comment on whether they are investigating the ratings agencies, the newspaper said.
Read more
‘Darth Vader’ demands free land from Ukrainian government
Browse all editions
React to the article
(8) Reactions
Possible French Bond rating agency Bowring interviews Micheal ..
Sorry about not remembering the person the lovely Ms. Bowring was interviewing on bond rating, but he is apparently a French (EU?) official considering setting up a French (EU?) rating agency. Ms. Bowring was asking the correct questions, but he was giving the wrong answers, suggesting that government agency might not be effective. How could any agency b worse than the agencies (S&P, et al) that rated every bond they were paid to, as AAA up until the day they failed. The rating agencies are paid by the bond issuers. Some time ago, the agencies were paid by investors, and one of the heads of a major agency said that was the proper way to do it, no one would ever, ever, trust the rating of an agency if the firm issuing the bonds also picked and paid the agency doing the rating. They would simply pay the one they knew would provide a good rating, and no one could trust them. That is exactly how the market has worked since the agencies started being paid by the bond issuers. Rating dross AAA is a great way to get rich (if France wants a good rating, pay the agency, then France will always be AAA). Is it possible that France can set up a worse agency? Michael has to be kidding or totally ignorant of history since 2006. Look at the record, S&P gave no warning on anything until the bits of the housing balloon were raining down. The private rating agencies were zero for 00's. Ten years of getting nothing right. You can't beat that record. They enabled the sale of hundreds of billions of dollars of worthless bonds, they guided us into the ditch that is collapsing the world economy today. No government agency can hope to equal that record. I will buy Ms/ Bowring "All the Devils Are Here: The Hidden History of the Financial Crisis" if she wants to read a bit of it, and Michael needs to read it also. Nothing horrible would have happened, except for those bond ratings of securitized home loans. No way anything but greed could have done so much wrong.
Rating Agencies- liers
Is this retribution by USA gorvernment? This is the sense i get from the above comments. If you read the article carefully it clearly states that the investigation began before the downgrade. So it looks like S&P was merely reacting to this investigation.
Let's all think about this; S&P have to be paid to produce a rating for you. This is what creates the whole problem and problems. Would it be reasonable for the money and profit thirst corporations to pay an agency that is likely to give them a downgrade? Would that make business sense? The corporations pay in order to make money. So if you know you are not rated "A" you pay in order to get an "A", that is what you pay for. If you are "A" you pay to be rated "AA"; If you are "AA" you pay to be rated "AAA"; and if your risks grow and are in danger of losing one of the As you have to pay more to keep the As. That is what business sense tells the corrupt CEOs. This explains why and how the "AAA"-rated corporations suddenly failed during that financial crisis. I mean, how did the very low-risk stocks just suddenly go through a quatum fall? It is because the stocks were extremely loaded with risk and S&P covered that up- because they were paid!!!
The only sad thing about this investigation is that it came way too late- like police always do!!!
This is just another example
This is just another example (in an already long list) of political corruption in the USA. All of the ratings agencies were involved in the lie that was credit ratings of MBS's in the lead-up to the 07/08 crisis. And the Congress even had a panel to investigate the financial crisis ... only after S&P downgrades US debt do they decide to "investigate" S&P's fraudulent MBS ratings. As for the other two major ratings agencies ... well I guess they'll remain clean as a whistle unless they decide to step out of line.
Vengeance
This sounds like petty payback on behalf of my home country. You downgrade our rating we put you under investigation. Everybody loses.
Probe of Standard & Poors
Totally agree with your comments Greg, it will be interesting to see if the US Justice Department will be investigating the other two rating agencies....!!!
I suppose the US Justice Department will be accusing S&P of causing the 2008 global recession next!!
What did you expect.?
This is Chicago style gangland retribution. Moody and Fitch knows they must stay in line or they will get the same. One asset that Moody has is it is owned by Warren Buffet. The President knows to leave Warren alone.
US probe Standard & Poor's over mortgages.
Thanks France-24. Only yesterday I posted here my views on 'US Credit rating vs rating agencies'.This subsequent news story, 'US probes Standard & Poor's over mortgages'; if it turns out to be true, is coming to me as a surprise. What I meant to say is that there is nobody above the law in our free world.Even 'Caesar's wife should be beyond suspicion'- this is what the history of the system of justice implies.But,we must also be thoughtful to admit that the process of law must be allowed to run its full course, because the defendant is considered innocent till proved guilty by the court of law finally.So, I would be watching with interest if and when the precess takes place. Thanks once again.
Now it is their turn to sweat
That's what happens when they downgraded the USA but before the downgrade no investigation was planned. No one person on wall street has been investigation or arrested either.