The United States Government has launched a sweeping investigation into the mortgage securities ratings process at Standard & Poor’s, the credit rating agency that found itself in the eye of a storm less than two weeks ago after it downgraded the U.S.’ cherished AAA rating.
The U.S. Justice Department was said to be looking into the specific question of whether S&P “improperly rated dozens of mortgage securities in the years leading up to the financial crisis... [and] was asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers,” according to the New York Times.
Quoting unnamed sources who were reportedly questioned by government officials on the matter ,the report said that the current investigation however began before S&P cut the U.S.’ credit rating.
Nevertheless, news of the latest inquiry comes on the back of sharp criticism of S&P in the U.S. Congress and White House, both of which have challenged the “agency’s secretive process, its credibility and the competence of its analysts”.
While there was no information on whether the other two top credit rating agencies, Moody’s and Fitch, were also involved in the investigation, the rating agency industry as a whole has been attacked for making record profits during the boom years even as they failed to predict the onset of mortgage security defaults that culminated in the collapse of the financial system.
S&P’s downgrade of the U.S.’ debt from AAA to AA+ earlier this month, based on its perception that the deficit reduction measures agreed by the administration were insufficient to stabilise national debt, saw further market turmoil in its wake as the downgrade triggered a massive global sell-off.
While the Justice Department declined to comment on the reported investigation of S&P, the New York Times quoted S&P spokesman Ed Sweeney as saying, “S&P has received several requests from different government agencies over the last few years. We continue to cooperate with these requests. We do not prevent such agencies from speaking with current or former employees.”