Tuesday, August 28, 2007
Five years after Sarbanes Oxley, the big three rating agencies -- S&P, Moody's, and Fitch -- are in the hot seat for their role in the subprime crisis. Just as in the case of Enron and Worldcom, the firms did not downgrade their ratings in the face of the weakening market, although in this recent instance they did issue warnings about the deteriorating state of the bond market. Critics cite three factors: the fact that the rating agencies are paid by the firms that issue the securities; rating firms advise firms in the packaging of the loans, working with them to achieve the desired rating; finally, a fear by the rating agencies that downgrading the ratings would exacerbate troubles in the markets. Meanwhile, the rating firms assert that they acted appropriately and on a timely basis and are working hard to generate good will. WPost, Ratings Firms Defend Assessment of Loan Securities.