California Attorney General Brown To Launch Investigation Into Rating Agencies' Role In Fueling The Financial Crisis

California AG Jerry Brown joins the ranks of Attorneys General to scrutinize the disastrous role the credit rating agencies played in the financial crisis. On Thursday, Brown will announce the investigation's launch.

From the press release:

San Francisco - At a news conference Thursday, September 17, 2009 at 10:30 a.m., Attorney General Edmund G. Brown Jr. will announce that he is launching an investigation into the role credit rating agencies played in fueling the financial crisis.

At the peak of the housing boom, these agencies gave their highest credit ratings to complicated financial instruments, including securities backed by subprime mortgages, making them appear as safe as government-issued Treasury bonds.

In rating these securities, these agencies worked behind the scenes with the same Wall Street firms that created them. For their work, the agencies earned billions of dollars in revenue, at a rate double what they earned for rating other financial products.

A good starting place could be this instant message exchange between two employees at S&P, one of the biggest rating agencies, captured in our Most Damning Internal Emails Of The Financial Crisis slideshow:

"Official #1: Btw (by the way) that deal is ridiculous.

Official #2: I know right...model def (definitely) does not capture half the risk.

Official #1: We should not be rating it.

Official #2: We rate every deal. It could be structured by cows and we would rate it."

Comments

[crapshooter]

Watch the TV Ads. I notice the Federal Regulators are bragging how many cases they brought last year against the crooks. Too little, Too late. Someone should tell them the horses have already fled the burning barn. Its too bad the blood supply didn't flow to Spitzer's brain all the time instead of heading south occasionally. Better luck to Brown.

[outnow]

By the time the term "liar's loans" was coined, there should have been criminal prosecutions. I spoke to an attorney yesterday about the problem and said, "Oh, you mean stated income loans?" He now does bankruptcy cases because there are so many people going bankrupt and fewer leaving substantial assets in estates to be probated. I said, "No, I mean liars' loans." The bankers, loan brokers and the borrowers all lied and all three groups knowingly committed perjury, fraud and conspiracy.

My wife paid cash for our home so we have no mortgage and have not refinanced. Our home is not an ATM. If prosecutors had done something earlier, even a few prosecutions, the collapse of the economy would not have happened. The message on the street - Main and Wall Street was that these lies and the phony appraisals and ratings given to toxic assets - was that nobody would be prosecuted.

Thank you, Jerry Brown, for not giving a damn about the politics of the bankers and their bought-off politicians and prosecutors. They should all be in jail. He and Eliot Spitzer should have acted sooner.

[jrutle]

Good for Jerry! Its shameful that Congress and the new Administration have not moved out quickly and aggressively to investigate the behavior of all the bad actors who had a role in this financial disaster and move to reform the regulation of the entire financial industry. The next asset bubble is waiting to happen while Washington fiddles.

[Kahill]

It’s about time someone investigated them! Kudos to Jerry Brown for picking up this ball. The rating agencies are the most culpable among the lot, because their key responsibility was to give the public a reliable measure of the risk involved. They however have been totally derelict in their duties. Much like Arthur Anderson in the Enron case and Arthur Anderson paid dearly for it. But Moody’s, Standards & Poor's, et al seem to be totally unaffected, when they should have been raked over the coals for this!

[Businespoli]

Everyday we, the people, get ripped off by those we put in office..an­d this cycle continues year after year

good articles 4 slow news day: http://www.iamned.com
fe

[plooger]

Great to see someone willing to look at the ratings agencies, but why is it being left to a state agency to do so? Where's the US Justice Department?

[hellboundtrain]

Look forward;never back, particularly when supporters, and the brothers in the bond,
have acted unscrupulously.

[sixx]

Actually the Triple A raters were the catalysts for the economic collapse. They committed pure fraud, a fraud that allowed Banks to make many more shady loans then pass them on to others as AAA products. Without those ratings Banks would have had to keep those loans on their own books.

[jrutle]

Agree, good post.

[cybexg]

This is good and BAD...

the good: it is about time that some investigation and actual answers were obtained

The bad: the corporations will pay the fines while those who manipulated and lied will get off (and keep their bonuses) and continue to propser.

I think we need a general reform corporate liability to impose liability upon the officers of the corporations.

[Tom95134]

Why is this being left up to cash starved states to look into the deceptive Ratings issue? Why doesn't the Federal Government take the lead? The problem crosses states lines so therefore it should be a Federal issue.

[PaiaGirl]

In California the attorney general is an independently elected seat. At the Federal level, the Attorney General is appointed by the President and confirmed by the Senate.

Do you see the bought and paid for Senators approving a renegade like Jerry Brown? Never happen. They will only confirm someone who plays nice with the corporations.

[lawyerinloafers]

Well, better late than never, I suppose.

[Mike Keough]

Great, but this needs to be a Federal probe. Last night I listened to an interview with the head of the IMF and he was talking about Business having the latitude to produce innovative "financial documents". What the hell is he talking about. They borrow, make loans, collect interest. Anything beyond that sounds like Bulls***, and is the BASIS for all of our Financial Problems. If the Government puts a stop to this "Creativity", which is only profitable to the brokers, we will all be better off.

[NEWSJUNKIEINNY]

GO get 'em Jerry ! This what helped him in his rise to prominince­.For a pol, he's about as honest as you can be.

[greyhound2]

The only thing a rating agency has to sell is its integrity. We all know that is in the toilet. Anybody who would believe anything a rating agency said will get what they deserve for their own stupidity.

[Pamzy]

so far the only people who have suffered are the American people, and we do not deserve it.

get after it Jerry!

[schoolmaster]

ok

[Pamzy]

THANK YOU JERRY! And you might want to get Elliott Spitzer to help you fully understand the monster you are dealing with. I've loved Jerry since we was my Governor and he's still going strong.