Rating Industry's Role In Crisis Explored

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The House Oversight and Government Reform Committee had a hearing Wednesday to investigate the role of credit rating agencies in the nation's worst financial crisis since the Great Depression. The committee is holding a series of hearings to examine how the financial meltdown began.

RENEE MONTAGNE, host:

NPR's business news starts with finding blame for the financial crisis.

(Soundbite of music)

MONTAGNE: Lawmakers hauled the leading credit rating agencies onto Capitol Hill yesterday and gave them a tongue lashing. Rating agencies are critical players in financial markets. They grade bonds so that investors can figure out whether to buy them and how much to pay.

STEVE INSKEEP, host:

In the years leading up to the subprime housing crisis, agencies gave high ratings to securities made up of bundled mortgages, the very securities that are now at the heart of the crisis. But internal company documents show that even as the agencies were giving their approval, they knew there were problems. NPR's Jeff Brady reports.

JEFF BRADY: Investors rely on credit rating agencies to evaluate where to put their money. California Representative Henry Waxman says the big three - Standard & Poor's, Moody's, and Fitch - all broke their bond of trust with investors. At Wednesday's hearing, Waxman read quotes from internal company documents.

Representative HENRY WAXMAN (Democrat, California): Let's hope we are all wealthy and retired by the time this house of cards falters.

BRADY: That was from an unidentified Standard & Poor's employee. Another from a member of Moody's management team said the company's errors made it appear it had sold its soul to the devil. The ratings agencies in recent years have earned billions from the same companies they rate. Former Moody's executive Jerome Fons says that created a conflict of interest.

Mr. JEROME FONS (Former Executive, Moody's): In my view, the focus of Moody's shifted from protecting investors to marketing ratings.

BRADY: The heads of the three rating agencies said they were caught off-guard by the housing bust but never admitted wrongdoing. Here's Deven Sharma from Standard & Poor's.

Mr. DEVEN SHARMA (President, Standard & Poor's): We constantly learn from our experience, and we are actively taking steps to improve our ratings process.

BRADY: Wednesday's hearing appeared to be more of a venting session than anything. No specific reforms of credit rating agencies were discussed. Jeff Brady, NPR News.

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