Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, August 15, 2007

The Role of Ratings Firms in the Subprime Market

Does this sound familiar?  The Wall St. Journal reports on the role of the credit-rating firms in the subprime mortgage book by giving top ratings to many securities comprised of risky loans.  In addition, the credit-rating firms actively worked with underwriters to design mortgage-backed securities that would receive high-enough ratings to be marketable.  The rating firms, of course, were severely criticized when Enron/Worldcom imploded, for their failure to downgrade their bonds even as the companies were on the verge of bankruptcy.  WSJ, How Rating Firms' Calls Fueled Subprime Mess .

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