Rating Agency Data Aided Wall Street in Deals

This article is looking at the most recent scrutiny of credit rating agencies and their role in the financial crisis. Prior to the financial meltdown, bad mortgage investments somehow earned credit ratings that made them look good. All of Wall Street was entitled access to formulas and computer models that derived these credit ratings. The open sharing by the rating agencies gave Wall Street banks this ability to manipulate complex investments deals to produce the desired ratings, “…banks started with the answers and worked backward.”

Goldman Sachs and others had cleverly hired analysts from rating agencies to help design these investment deals. According to this article, rating agencies didn’t suspect any problems before the financial crisis because they assumed housing prices were increasing and that diversified investments compiled of home loans from varying regions would make most complex investments safer. Rating agencies were wrong with these assumptions and this has cost investors billions.