continuing to react to the mortgage crisis be creating new laws, one more law is on the books. Earlier Thursday, senators dealt a blow to the nation’s largest credit-rating agencies, approving tough new rules for the industry and voting to remove the government’s formal endorsement of a handful of firms.
In a pay-to-play game ratings agencies were trusted by Americans until problems becmae obvious in 2007. An SEC investigation of ratings agencies could turn up some interesting facts. While the Dow Jones Industrial Average rose almost 4 percent Monday, share prices for Moody’s Corp. tumbled 7.19 percent as investors digested confirmation of a Securities and Exchange Commission investigation into the credit-rating agency.
Here’s the written testimony of Eric Kolchinsky before the Senate Permanent Subcommittee on Investigations last week who, during the majority of 2007, was the Managing Director in charge of the business line which rated sub-prime backed CDOs at Moody’s Investors Service.
Complicated portfolios made up of subprime mortgages, known as collateralized debt obligations, or CDOs, received the stamp of approval from rating agencies, but turned out to be a contagion that wreaked havoc on the global economy.
Confirming what most analysts knew, both before and after 2007, a Senate panel investigating the causes of the nation’s financial crisis on Thursday unveiled evidence that credit-ratings agencies knowingly gave inflated ratings to complex deals backed by shaky U.S. mortgages in exchange for lucrative fees.