The three largest credit rating agencies were criticized by lawmakers for their roles in contributing to the worst financial crisis in decades, according to various reports.
“The story of the credit rating agencies is a story of colossal failure,” Representative Henry Waxman, chairman of the House of Representatives Oversight and Government Reform Committee, said Wednesday at a hearing.
Moody’s Corp, McGraw-Hill’s Standard & Poor’s, and Fimalac’s Fitch Ratings have been blamed for failing to note problems with mortgage securities that have spread through the financial realm.
The rating agencies broke this bond of trust, and federal regulators ignored the warning signs and did nothing to protect the public,” said Waxman, a California Democrat. “The result is that our entire financial system is now at risk.”
Documents also revealed that a portfolio manager with large mutual fund company Vanguard Group told Moody’s over a year ago that the rating agencies “allow issuers to get away with murder,” according to FinancialWeek.
The rating agencies themselves did acknowledge their responsibilities in the matter. “We did not … anticipate the magnitude and speed of the deterioration in mortgage quality or the suddenness of the transition to restrictive lending,” Moody’s McDaniel said in prepared remarks, according to Reuters.
S&P is implementing more safeguards against potential conflicts of interest by establishing an office of the ombudsman and is increasing the amount of information it publishes about the stress tests for ratings.
Fimalac SA’s Fitch Ratings says that to win back investor confidence, ratings must be more predictive and must tell the market about what might happen, instead of what happened yesterday.