Thursday, July 5, 2007

Ohio A.G. building a case to investigate credit-rating agencies like Moody's

Fortune via CNN: “While Bear Stearns is the most recent financial institution to find itself caught up in the subprime-mortgage quagmire, the three credit-rating agencies - Standard & Poor's, Moody's (Charts), and Fitch - may be the next ones to see their good names dragged through the mud.”

“The reason? Ohio attorney general Marc Dann is building a case against them based on the role he believes their ratings played in the marketing of risky mortgage-related securities.”

“The ratings agencies cashed a check every time one of these subprime pools was created and an offering was made,’ Dann told Fortune, referring to the way the bond issuers paid to get their asset-backed securities (ABSs) and collateralized debt obligations (CDOs) rated by the agencies. These ratings run from AAA for debt with the lowest risk of default all the way down to noninvestment- grade bonds, which many pension funds are prohibited from purchasing in their charters. ‘[The agencies] continued to rate these things AAA . [So they are] among the people who aided and abetted this continuing fraud," adds Dann.’”

“Ohio has the third-largest group of public pensions in the United States, and they've got exposure: The Ohio Police & Fire Pension Fund has nearly 7 percent of its portfolio in mortgage- and asset-backed obligations.”

“Moody's says that Dann's accusations are nonsense. ‘We perform a very significant but extremely limited role in the credit markets. We issue reasoned, forward-looking opinions about credit risk,’ says Fran Laserson, vice president of corporate communications at Moody's. ‘Our opinions are objective and not tied to any recommendations to buy and sell.’ She further points out that while some securities have lost significant value, none have actually defaulted. (S&P and Fitch declined to comment.) ” read more >>


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