In the U.S., new enquiries are being made into financial ratings agencies, adding a new twist to the debacle of finance failure that lead to the long-lasting recession.
One employee warned in internal e-mail that the company would lose business if it failed to give high enough ratings to collateralized debt obligations, the investments that later emerged at the heart of the financial crisis.
That story came out of Standard and Poors who–despite contrary warnings from other employees–went on to ignore negative reports in their attempt to expand business.
The companies failed to assign adequate staff to examine new and exotic investments, and neglected to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.
Ironically, the new restrictions being considered may give the agencies even more power in future financial deals.
The House bill calls for removing references to the rating agencies in federal law, and both bills would require a study of how existing laws and regulations refer to the companies.
The addition of new regulations might inadvertently serve to empower the agencies, Mr. White said. “Making the incumbent guys even more important can’t be good, and yet that’s the track that we’re on right now,” he said.
The real lesson is that the deregulation of the 80’s and 90’s–especially during the Clinton administration–was a mistake. Now the question is–Is Congress free enough from the influence of financial lobbyists to reinstate the regulation?
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