Standard & Poor's Is Giving More Favorable Ratings Than Its Rivals On Mortgage-Backs; NY Times Questions Whether Agency Is Repeating Mistakes That Helped Cause The Global Financial Crisis

Thursday, August 01, 2013 10:20
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Standard & Poor's Is Giving More Favorable Ratings Than Its Rivals On Mortgage-Backs; NY Times Questions Whether Agency Is Repeating Mistakes That Helped Cause The Global Financial Crisis

Tags: investing | investing for income | regulation

Standard & Poor's, a government-recognized agency for rating securities, has been giving higher ratings than its big rivals on some mortgage-backed securities.

 

Just five years after the mortgage crisis helped trigger a global financial crisis that brought the world's financial systems to the edge of collapse, and as Wall Street is eagerly trying to revive the market for these investments, S&P is essentially being accused by The Times of returning to its old ways.

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This is great journalism. An analysis was conducted for The Times by Commercial Mortgage Alert and finds S&P is tailoring its ratings to get more business. According to The Times, S&P responded by saying the analysis has flaws and is incorrect, "though it declined to elaborate on what those flaws were."

 

Here's the clincher: S&P is fighting a government lawsuit accusing it of similar practices before the financial crisis.

 

This gives you an idea of how ineffective government regulation is and how much much influence Wall Street has over government regulation. 

 

In January 2011, The Financial Crisis Inquiry Commission, set up by the US Congress and President to investigate the causes of the crisis, reported, "the three credit rating agencies were key enablers of the financial meltdown." Five years after the world financial system nearly crashed, we're seeing allegations of the same practices that caused the crisis.

 

Despite years of hearings and debate, little was really done to reform the ratings games. The regulatory system permits the same kind of abuse now that went on before the financial crisis. The money at stake and risk of the ratings games played is astronomical, so reform is diffcult to achieve.

 

It has to make you cyncial about the prospects for reform of the financial advice business.

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