It’s Too Easy To Investigate The Ratings Agencies

The ratings agencies like S&P only give their opinions on what securities are worth. They have a first-amendment right to their opinions.

What makes their opinions dangerous are U.S. government regulations that force bond securitization to go through one of the big three ratings agencies. This is a government-enforced oligopoly and these things are never efficient.

Why not leave it to the free market and people can decide for themselves how much they trust the rating of a particular agency?

It’s the system that is broken. To err is human. Ratings agencies are going to make mistakes and given the playing field, they are going to feel overwhelming pressure to give better ratings to secure more business.

The Justice Department would seem to have a steep hill to climb to prove that S&P intentionally inflated their rating to commit fraud. On the other hand, the Justice Department has unlimited resources and can force people to testify and therefore can get anyone they want and they will probably force a settlement.

(Bloomberg) — The U.S. Justice Department is probing Moody’s Investors Service and Standard & Poor’s over ratings of mortgage-backed securities, according to three former employees who said they were interviewed by investigators.

Washington-based lawyers from the Justice Department spoke to former employees as recently as last month about whether the companies raised their grades for the complex investments in order to win business, said the former employees, who asked for anonymity because the investigation is ongoing. The inquiry is a civil matter, two of them said.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2011/08/18/bloomberg1376-LQ4SN40UQVI901-63TPPBB8AUIQEBK3M3IOGSRR6S.DTL#ixzz1VRcQRVg7

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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