Friday
Apr232010
Credit Agencies Contributed Mightily To Financial Crisis, Says Levin
Friday, April 23, 2010 at 12:23PM
By Monique Cala
University of New Mexico/Talk Radio News Service
According to Senator Carl Levin (D-Mich.), malevolent lenders are to blame in part for the nation's economic collapse by turning to "high risk lending strategies to earn quick profits, dumping hundreds of billions of dollars in toxic mortgages into the financial system.”
During a hearing before the Senate Permanent Subcommittee on Investigations on Friday, Levin pointed out that by 2006 and 2007, the “toxic mortgages flooding the financial markets began going bad in record numbers.”
“By September 2008, major global financial institutions like Lehman Brothers, AIG, Citibank, Goldman Sachs, and Morgan Stanley were bankrupt, bailed out, or struggling,” said Levin.
The Senator said that if he had to choose one pivotal event that caused the 2008 financial crisis he would have to say that it was “when the credit rating agencies realized their AAA rating wouldn’t hold.”
“We even saw instances of bankers pushing to remove analysts who were not playing ball,” said Levin. “At times, analysts who resisted banker demands or challenged ratings were restricted from deals.”
After an 18 month investigation, the subcommittee concluded that there was a conflict of interest for the rating agencies.
“The credit rating agencies were operating with an inherent conflict of interest, because the revenues they pocketed came from the companies whose securities they rated,” said Levin. “It’s like one of the parties in court paying the judge’s salary.”
As for a motive for the rating agencies, Levin pointed to profit with evidence that three firms tripled their revenue between 2002 to 2007.
University of New Mexico/Talk Radio News Service
According to Senator Carl Levin (D-Mich.), malevolent lenders are to blame in part for the nation's economic collapse by turning to "high risk lending strategies to earn quick profits, dumping hundreds of billions of dollars in toxic mortgages into the financial system.”
During a hearing before the Senate Permanent Subcommittee on Investigations on Friday, Levin pointed out that by 2006 and 2007, the “toxic mortgages flooding the financial markets began going bad in record numbers.”
“By September 2008, major global financial institutions like Lehman Brothers, AIG, Citibank, Goldman Sachs, and Morgan Stanley were bankrupt, bailed out, or struggling,” said Levin.
The Senator said that if he had to choose one pivotal event that caused the 2008 financial crisis he would have to say that it was “when the credit rating agencies realized their AAA rating wouldn’t hold.”
“We even saw instances of bankers pushing to remove analysts who were not playing ball,” said Levin. “At times, analysts who resisted banker demands or challenged ratings were restricted from deals.”
After an 18 month investigation, the subcommittee concluded that there was a conflict of interest for the rating agencies.
“The credit rating agencies were operating with an inherent conflict of interest, because the revenues they pocketed came from the companies whose securities they rated,” said Levin. “It’s like one of the parties in court paying the judge’s salary.”
As for a motive for the rating agencies, Levin pointed to profit with evidence that three firms tripled their revenue between 2002 to 2007.
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