Meet the Wall Street Enablers: Credit Rating Companies

Word on the street is credit rating companies are committing mortgage fraud, and ‘the street’ is none other than Wall Street.

With a foreclosure fraud financial crisis this intense and prolific, there’s certainly enough blame to go around for everyone, but we have one more culprit to add to the list! News broke this week that the SEC is investigating and considering civil fraud charges against credit rating companies for their role as “key enablers” of our country’s financial meltdown.

Critics of the leading credit rating companies like Standard and Poor’s argue that these firms fueled the $1 trillion Wall Street mortgage-securities machine before the boom ended.

Regulators, however, should not be free from blame: there is clear evidence of incompetence and deliberate neglect by the SEC in keeping credit rating companies in line. The fact is that credit rating companies and the SEC itself have served as co-conspirators with Wall Street banks to bury us in this seemingly insurmountable hole.

According to the Wall Street Journal, SEC officials are finally investigating whether the ratings companies committed fraud by failing to do enough research to be able to adequately rate the pools of subprime mortgages and other loans that underpinned mortgage-backed securities.

Allegations continue to swirl that the credit rating companies relied on incomplete or out-of-date information about the pools of loans in the mortgage-backed securities or ignored obvious problems among subprime loans to give unduly high ratings to slices of deals, known as collateralized debt obligations (CDOs), that were then sold to investors.

The ratings firms assigned coveted triple-A ratings to many of these CDO slices in the run-up to our real estate and national financial crisis, before doing mass downgrades when the housing market collapsed and the subprime mortgages soured, according to the Wall Street Journal.

Whether charges against the credit rating companies are ever actually filed or not, the blame game is in full swing and doesn’t appear to be stopping any time soon.

From The Trenches

Roy Oppenheim