Moody’s And S&P Influenced By Wall Street For Ratings

Posted By on April 22, 2010

By Jesse Westbrook

April 22 (Bloomberg) — Moody’s Investors Service and Standard & Poor’s were influenced by Wall Street, had insufficient resources and used outdated models to grade mortgage securities that blew up when the U.S. housing market collapsed in 2007, according to Senate investigators.

The Senate Permanent Subcommittee on Investigations concluded after an 18-month probe that the credit-rating firms had conflicts of interest and ignored signs that fraud and lax lending had infected the housing market. The findings may undermine lobbying efforts aimed at defeating legislation that would make it easier for investors to sue the companies.

“Credit-rating agencies allowed Wall Street to impact their analysis, their independence and their reputation for reliability,” Senator Carl Levin, the Michigan Democrat who leads the investigative panel, told reporters in Washington today. “They did it for the big fees that they got.”

E-mails released by the committee show Moody’s and S&P deferring to investment banks that were paying them to assign ratings to securities composed of pooled mortgages.

S&P’s residential mortgage-backed securities group had “become so beholden to their top issuers for revenue they have all developed Stockholm syndrome which they mistakenly tag as customer value creation,” an unidentified S&P employee wrote in an August 2006 e-mail. Stockholm syndrome describes hostages who’ve developed positive feelings for their captors.

More…..http://www.bloomberg.com/apps/news?pid=20601110&sid=a7HeXCIFSsFQ

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