The
case is the government's first major action against one of the credit
rating agencies that stamped their seals of approval on Wall Street's
mortgage bundles. It marks a milestone for the Justice Department, which
has been criticized for failing to make bigger cases against the
companies involved in the crisis.
Rating
agencies are widely blamed for contributing to the financial crisis
that crested in 2008 and caused the deepest recession since the Great
Depression. They gave high ratings, indicating little risk for
investors, to pools of mortgages and other debt assembled by big banks
and hedge funds. That gave even risk-averse investors the confidence to
buy them.
Some
investors, including pension funds, can only buy investments that carry
high ratings. In effect, rating agencies like S&P greased the
assembly line that allowed banks to push risky mortgages out the door.
When the housing market turned in 2007, the agencies acknowledged that
mortgages issued during the bubble were far less safe than the ratings
indicated. They lowered the ratings on nearly $2 trillion worth,
spreading panic that spiraled into a crisis.
Another
major player in the rating business is Moody's which could very well
see the same action against them by the U.S. Government, too.
Reprint of Fox Business News
