Question by Maxwell: Wall Street Rating Agencies?
This is for my test…
Wall street had to sell the rating agencies on the concept of securitization, where mortgages moved off the balance sheets of banks. And into a pool of securitized and backed by many mortgages so that the risk of default was minimized. Discuss the role of the rating agencies. Were they were involved in fraudulent activity since they made money by reviewing the bonds and making money on the bonds? If not fraudulent activity, what other rememdies could be made to protect the public interest?
thanks for the help. Will give out Best Answer to whoever even remotely helps me with this
Best answer:
Answer by Dr. Mengele
Well to put it simply the rating agencies, like Stand and Poore’s, were actually paid by investment banks to rate their securities. It was not fraudulent since the agency offers a opinion which is not legally binding. Since the agencies gave CDOs a AAA rating, they were popular among pension funds. Since pension funds backed up their securities with insurance agencies, the default of CDOs destroyed AIG. So in conclusion no, legally there is nothing there you can say was fraudulent, however the rating agencies destroyed the biggest insurance company in the world.
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