This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Who's to Blame for the Economy? Rating Agencies

Each day this week, a different writer from will made the case for why one of five prime culprits -- the banks, Congress, irresponsible home buyers, the Federal Reserve or the rating agencies -- is most to blame for the credit crisis and ensuing economic meltdown.

A good measure of who is responsible for getting us into this mess is looking at who got rich off of it. Bond ratings agencies certainly got their share of the take.

Moody's Investors Service (MCO - Get Report) saw its profits quadruple between 2000 and 2007 and had a higher profit margin than any other company in the S&P 500 for five straight years, according to opening statements from Henry Waxman, chairman of the House Committee on Oversight and Investigations, in a congressional hearing on the ratings agencies he held in October.


Investors in Moody's, Fitch Ratings and McGraw Hill Cos. (MHP) unit Standard & Poor's made out like bandits during those years because they practically had a license from the government to print money. Throughout the 1990s, they were the only nationally recognized statistical rating organizations. While the Securities and Exchange Commission began letting other entities into this club in 2003, the big three had such a huge head start that they still dominated the scene.

Their revenues exploded in recent years, however, as the debt securitization market began to catch on. As banks like Citigroup (C - Get Report) and Merrill Lynch (since bought by Bank of America (BAC - Get Report)) bought up more and more bad loans and piled them into synthetic securities, they turned to the ratings agencies to give them triple-A ratings so they could be widely sold and distributed. The triple-A rating was important, because large institutional investors like pension funds and insurance companies that are barred from riskier investments needed its deal of approval to buy the securities. They had rules established by their investment committees and regulators, which prohibited them from buying securities with ratings below a certain threshold.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
BAC $14.56 -1.56%
C $46.28 -0.96%
MCO $95.72 -3.41%
AAPL $93.74 -1.15%
FB $117.58 0.73%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs