E-mails and other documents were presented as evidence at a hearing examining the causes of the financial crisis on Capitol Hill on April 23, 2010. This hearing is part of an 18-month investigation by the Senate Permanent Subcommittee on Investigations, led by Senator Carl Levin. Subcommittee assertions are that the rating agencies were well aware of the risks in the housing market and recklessly used rating models that they knew inflated the grades given to securities.
1. Briefly summarize the level of complexity and problems with Congress to regulate the ratings agencies, as noted by Arturo Cifuentes, former V.P of Moody’s (as shown in the video)?
2. What high profile investment firm was implicated as pressuring the ratings agencies? How do you think Congress can prevent this from happening in the future?
3. In 2007, what percentage of AAA-rated mortgage securities were downgraded to junk status?
Ellis, Blake. (2010). “How credit watchdogs fueled the financial crisis,” CNN Money.com, April 24 (Retrievable online at http://money.cnn.com/2010/04/23/news/economy/credit_rating_agencies_hearing/index.htm?postversion=2010042411)