US probes S&P;’s ratings on mortgage bonds before crisis

August 19th, 2011 - 11:28 am ICT by IANS  

Washington, Aug 19 (IANS/EFE) The US Justice Department is investigating credit rating agency Standard & Poor’s to determine if it rated mortgage bonds too highly prior to the economic crisis that erupted in late 2007, The New York Times reported Thursday.

Sources close to the investigation told the daily that the probe began before Standard & Poor’s downgraded the US’ credit rating from AAA to AA+ this month, the Times said.

Nevertheless, it is “likely to add fuel to the political firestorm” that has surrounded the downgrade action, the Times said.

It also spotlights the S&P;’s previous rating decisions and their connection to the US’ economic woes in the wake of the global recession, which include slow growth, a high unemployment rate of more than 9 percent and large amounts of public debt.

Following the downgrade, some lawmakers and administration officials have questioned the credibility of S&P;’s “secretive process, its credibility and the competence of its analysts, claiming to have found an error in its debt calculations”, the Times noted.

The daily said that, according to people with knowledge of the government’s interviews with current or former S&P; employees, “the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P; business managers”.

If the government finds sufficient evidence to support what would likely be a civil case, “it could undercut S&P;’s longstanding claim that its analysts act independently from business concerns”.

It is not clear if the Justice Department’s investigation also includes the other two ratings agencies, Moody’s and Fitch.


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