TBO.com - TBO is Tampa Bay Online

Blind Eye Or Broken Crystal Ball?

ADVERTISEMENT

The New York Times

Published: December 20, 2008

Since the subprime mortgage troubles exploded into a full-blown financial crisis last year, the three top credit-rating agencies - Moody's, Standard & Poor's and Fitch Ratings - have faced a firestorm of criticism about whether their rosy ratings of mortgage securities generated billions of dollars in losses to investors who relied on them.

The agencies are supposed to help investors evaluate the risk of what they are buying. But some former employees and many investors say the agencies, which were paid far more to rate complicated mortgage-related securities than to assess more traditional debt, either underestimated the risk of mortgage debt or overlooked its danger so they could rake in large profits during the housing boom.

A Moody's spokesman, Anthony Mirenda, said the company would not change ratings without substantive reasons. "As a matter of policy, Moody's is obligated to reconvene a rating committee if there is new information put forth by an issuer that could have a material impact on a security's creditworthiness," he said, "and our policies prohibit changes to ratings for anything other than credit considerations."

He added that "Moody's knows of no instances in which a reconvened rating committee resulted in improper changes to ratings on Countrywide securities."

Bank of America, which took over Countrywide this year, said it could not verify details of prior management's interactions with Moody's.
Members of Congress have grilled the agencies, asking their executives to answer accusations of incompetence and to say whether they assigned glowing ratings to keep clients happy and expand their business.

State and federal officials are also making inquiries. Moody's recently disclosed in its regulatory filings that it had received subpoenas from state attorneys general and other authorities pertaining to its role in the credit crisis.

Moody's said it was cooperating. The company denies that it went easy on ratings to generate income.

Whether such risks were truly undetectable, or whether they were ignored by Moody's and the other agencies, is at the core of what regulators, legislators, investigators and investors are trying to determine.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT