Moral Low Ground


U.S. Justice Department Joins S.E.C. Investigation of Standard & Poor’s and Other Credit-Rating Firms

The U.S. Justice Department has joined forces with the Securities and Exchange Commission (SEC) in a probe of Standard & Poor’s (S&P) and rival credit-rating agencies and their role in creating mortgage-bond deals that contributed to the 2008 financial crisis, the Wall Street Journal reports.

Government officials, trying to allay concerns that the probe is some sort of tit-for-tat retaliation for S&P’s August 5 downgrade of long-term U.S. government debt, stressed that the investigation began before the downgrade occurred.

The SEC has been investigating S&P for months, as well as Moody’s Investors Service, a rival rating agency, regarding multiple mortgage-bond deals. Now attorneys from the Justice Department have joined the SEC probe, looking into whether S&P’s mortgage-bond rating process contains any improprieties.

According to a statement from S&P, the company “has received several requests from different government agencies over the last few years regarding U.S. mortgage-related securities.” The statement adds that the firm has “cooperated and will continue to cooperate with these requests.”

As for Moody’s, a former employee told the Journal that he was contacted by Justice Department officials three times over the past year and a half. He was interviewed for an entire day last year; earlier this year investigators asked him for the names of Moody’s employees in charge of mortgage-backed securities. The former employee said that the Justice Department stressed that it was a civil, not a criminal, investigation.

According to the Journal, investigators were also interested in learning whether the firm’s managers encouraged securities analysts to give preferential treatment to bankers in a bid to maximize profits at the expense of ratings quality.

Additionally, the SEC will examine S&P’s downgrade process. The U.S. Treasury Department claims the downgrade was unwarranted and that S&P made a $2 trillion mistake when calculating the federal deficit over the next ten years.

Om August 5, S&P downgraded U.S. long-term debt from ‘AAA’ to ‘AA+.’

The downgrade marked the first time in U.S. history that the nation’s long-term debt was rated anything but ‘AAA,’ a designation reserved for the world’s safest investments.

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One Comment

  1. TylerAugust 19, 2011 at 11:33 amReply

    I believe it is the government that should have the main role in the regulation of the country´s financial affairs. That is why I do not support the idea of the rating agencies making judgements that are not even reviewed before they are given. Another thing is that they are too slow when they make many of their ratings. Opinions on Greece, Ireland and Portugal were only given long after global capital markets investors saw financial trouble and began to sell sovereign debt or short it.

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