• what The U.S. Justice Department is investigating whether S&P kept the credit ratings on certain bonds backed by mortgage debt higher in an effort to protect the company’s business concerns.
• why See: The financial crisis, which happened in part due to toxic mortgage securities that had inflated credit ratings. S&P’s ratings played a huge role in this whole mess, BTW. source

• » And in case you were wondering: This investigation began before S&P lowered the U.S. credit rating, though there’s a good chance it will now be informed by it. Anyway, if you don’t understand the credit ratings issue, here’s a good way to put it: Companies pay the agencies for high ratings.  Kinda like if Warner Bros. paid Roger Ebert to recommend the latest Harry Potter movie. Now imagine if Ebert recommended “Birdemic” based on his financial interests. This would be extremely unethical behavior for journalists. But did S&P do something like that?

Posted by Ernie Smith • Permalink