S&P Being Probed After U.S. Downgrade; Moody's, Fitch Next?
By IB Times Staff Reporter | August 18, 2011 8:54 PM EST
Standard & Poor's, the ratings agency that deprived the United States of its AAA rating, is being probed by the Department of Justice over credit ratings of several mortgage securities that led to the financial crisis in 2008.
The regulators are probing whether S&P improperly rated dozens of mortgage securities in the years leading up to the financial crisis, according to The New York Times.
The article said the investigation had begun before the U.S. downgrade. Earlier this month, S&P cut its long-term credit rating on the U.S., to AA+ from AAA and kept a negative outlook.
The economic downturn has seen the collpase of large financial institutions, the bailout of banks by national governments, and downturns in stock markets around the world. It has wiped out trillions of U.S. dollars, and caused a significant decline in economic activity worlwide.
Credit rating agencies have been highly criticized for understating the risk involved with new, complex securities that fueled the U.S. housing bubble, such as mortgage-backed securities and collateralized debt obligations.
During the economic boom, credit rating agencies amassed huge profits as they awarded top ratings to several troubled mortgage loans, which made them appear less risky. For instance, the Financial Crisis Inquiry Commission report says that Moody's rated 45,000 mortgage securities as AAA from 2000 to 2007.
Better credit ratings helped the markets soar but their subsequent downgrades through 2007 and 2008 wreaked havoc.
"The three credit rating agencies (S&P, Fitch and Moody's) were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval," according to the Financial Crisis Inquiry Commission report that was released in January.
As a result, credit rating agencies are now under scrutiny and S&P is being investigated. It is possible that the investigation may spread to the nation's other premier credit rating agencies, Fitch and Moody's.
Separately, S&P affirmed its AAA rating on France. In an interview to RTL radio, S&P's head of France Carole Sirou said the agency is confident that the country would maintain the top notch rating. She also noted that France has held the AAA rating since 1975.
To contact the editor, e-mail:
Most Popular Slideshows
- Flight MH17 Attack: Russians Claim 'Putin A Terrorist,' Memorial at Dutch Embassy Overflows [PHOTOS]
- Typhoon Rammasun Claims 18 Lives in China, Incurs $4.32B Losses (PHOTOS)
- Ellen DeGeneres Caught Cheating with Mutual Friend Before Portia de Rossi’s Rehab – Reports [PHOTOS]
- Malaysia Airlines MH17: Vital Black Boxes Finally Land in Hands of Malaysian Authorities, Rebels Announce Ceasefire (PHOTOS/VIDEOS)
Join the Conversation
- Australian Stock Market Report – Midday July 23, 2014
- Major European & U.S. Airlines Cancel Flights to Israel after Rocket Attack on Tel Aviv Airport
- Australian Stock Market Report – Midday July 24, 2014
- Alibaba Okays Yahoo Request to Sell 140 Million Shares Via IPO, 68 Million to Be Sold to Shareholders
- Australian Stock Market Report –Afternoon July 24, 2014
- Samsung Galaxy Note 4 Apps Leak Online, Five Fresh Features to Expect from the Android Smartphone
- Moto 360 Price Speculations, Key Features, Strategic Release Date, Design: A Watch That is More Than Just Time
- Windows Phone 8.1 Update Rollout: 20 Nokia Lumia Phones Eligible and 13 New Features to be Added
- Three New Moto G Successors Spotted in FCC Document Dubbed Moto G2, Moto M and More --Reports
- iPad Air 2 Release Date Will Skip IGZO Panel; To Rollout with Super-Slim iPad Mini Air
- HTC Google Nexus 8 Release Date Imminent with New Nexus 7 Deals, Two New Tablets Soon
- Upcoming iPad Mini 3 Could be 30% Thinner and Likely be Called iPad Mini Air; Apple Q3 Results Show 9% Decrease in iPad Sales