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Are the Rating Agencies About to Get Their Comeuppance?

Posted By Barry Ritholtz On June 26, 2014 @ 8:45 am In Analysts,Bailout Nation,Credit,Really, really bad calls,Regulation | 12 Comments

This week in encouraging news, we learn that the Securities and Exchange Commission may finally be pursuing one of the prime enablers of the financial crisis — the ratings companies. Previously, it was reported that disclosure violations [1] were on the SEC’s radar, but truth be told, those are minor offenses.

The SEC’s Office of Credit Ratings, a division whose sole purpose is essentially to oversee Moody’s and Standard & Poor’s, seems to be stirring. The Wall Street Journal reported [2] that the “government’s top credit-rating watchdog has kept a low profile since taking the job two years ago to help prevent another financial crisis. That may be about to change…” Multiple cases have reportedly been referred to the SEC’s enforcement division, and new regulations are due.

And a welcome change it would be. Of all the players that helped cause [3] the financial crisis, the ratings companies have gotten off scot-free. Banks have had massive fines while many mortgage and derivative underwriters have had their garbage securities put back to them at great cost. Since 2008, there have been 388 mortgage companies [4] that have gone bankrupt. All of that junk paper found its way into AAA-rated securitized products and derivatives. The penalty for Moody’s and S&P has been essentially nil. Fear of so-called reputational damage — the theory that concerns about their good name keeps companies in line — is the latest economic nonsense to be thoroughly debunked by events. Continues here [5]


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2014/06/are-the-rating-agencies-about-to-get-their-comeuppance/

URLs in this post:

[1] disclosure violations: http://www.reuters.com/article/2014/04/30/us-regulation-summit-sec-idUSBREA3T14G20140430

[2] reported: http://online.wsj.com/articles/sec-is-gearing-up-to-focus-on-ratings-firms-1403651968

[3] helped cause: http://www.ritholtz.com/blog/2011/01/assessing-blame/

[4] 388 mortgage companies: http://ml-implode.com/

[5] Continues here: http://www.bloombergview.com/articles/2014-06-26/making-the-credit-raters-sweat

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