Pressure Led Analysts To Give Wrong Credit Ratings
The executives of former credit rating industry told a Senate panel today that their analysts awarded safe ratings to risky investments due to competitive pressures and lack of internal communications.
The investments, which were rated safe by analysts went bust, contributing to the financial crisis.
Sen. Carl Levin, who is the chairman of a panel investigating the industry, asked the Congress to take into consideration the issue of a conflict of interest that arises from credit rating agencies rating the bonds of those banks, which give them payments. "It's like one of the parties in court paying the judge's salary," said Levin.
He added that the Senate should find a solution to this problem in the financial regulatory overhaul, which the Senate is scheduled to take up next week.
Levin is the chairman of the Permanent Subcommittee on Investigations, which has been investigating the causes of the recession, which gripped the US in the last couple of years.
Meanwhile, Frank Raiter, a former managing director for Standard & Poor's, said that the poor communication between senior managers and the analytical managers was an important reasons behind assignment of improper bond ratings. Reiter added that analysts were under pressure from the management to attracting business from banks.
