Senate To Probe Ratings Agencies

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Yesterday we told you about the key role of the credit ratings agencies in helping to trigger the current financial crisis.

And today, the Wall Street Journal reports that a probe by the Senate’s Permanent Subcommittee on Investigations will focus in part on that very subject.

As we explained, the leading ratings agencies — Moody’s, Standard and Poor’s, and Fitch — are paid by the banks whose securities they rate, creating a clear incentive for them to inflate their ratings.

The Senate investigation is expected to go more deeply into the problem than did hearings held last month by Rep. Henry Waxman’s House Oversight Committee.

Norm Coleman, the subcommittee’s ranking Republican, who will lead the portion of the investigation focusing on the ratings agencies, told the Journal: “We’re going to look at the root causes of this, looking at whether the inherent conflict clouded the judgment of the agencies. Somebody missed something here. Was it because of the complexity or was it in the zeal to make money?”

The SEC, as well as New York Attorney General Andrew Cuomo, are already looking into the agencies. An SEC report released in July found “serious shortcomings” in their practices.

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