The credit ratings agencies were pivotal in leveraging the engineered housing collapse into the larger economy. Predictably, they continue to reign with impunity.
The California Public Employee Retirement System requires that bonds it holds be rated by one of the top three credit raters even after it sued those companies for issuing “untrue, inaccurate and unjustifiably high credit ratings.”
“These credit ratings were false at the time they were initially assigned, and continued to be false during the existence of the” investments, Calpers, the nation’s biggest pension fund, claims in its 2009 lawsuit against Moody’s Corp., Fitch Inc. and the parent company of Standard and Poor’s. The state pension fund says the bad ratings cost it as much as $1 billion.
That Calpers still depends on S&P, Moody’s and Fitch to rate its investments shows how much power these companies continue to wield in the global financial industry even after several investigations concluded their AAA ratings on mortgage bonds and other complex investments helped lead directly to the 2008 financial collapse. Calpers settled with Fitch without receiving payment, and the suit against S&P and Moody’s is pending.
Calpers, which manages $288 billion in assets, isn’t alone. Most major pension funds, insurance companies and mutual funds require investments in corporate bonds, mortgage bonds or collateralized debt obligations be rated by one of the three major ratings agencies.
Pimco, the world’s largest bond investor, also requires many of its investments to be rated by S&P and Moody’s even after its chairman, Bill Gross, in 2007 vividly thrashed the two companies for giving high ratings to trash investments.
“What was chaste and AAA years ago may no longer be the case today,” Gross wrote in his weekly investment outlook. “You were wooed, Mr. Moody’s and Mr. Poor’s, by the makeup, those six-inch hooker heels and a ‘tramp stamp.’ ” …
No, they were wooed by the money, either above or below the table. Either way, they acted in the interests of the economic saboteurs.