Credit Rating Agencies, Not Honest Brokers, Now Hold World's Fate

Credit Rating Agencies, Not Honest Brokers, Now Hold World's Fate

Huge mortgage lenders like Countrywide and Washington Mutual paid hefty commissions to brokers who wrote loans to anyone not verifiably dead, then took those loans and sold them to the giant investment banks -– Goldman Sachs, Lehman Brothers, Citigroup. The Wall Street bankers packaged these loans into bonds that they then sold off around the globe –- to pension funds in the United States, to governments in Asia, to private investors in Europe.How did they pull off this feat of alchemy, turning mortgages written willy-nilly, with scant credit checks, into seemingly rock-solid bonds that could be sold to conservative investors, like the managers of public retirement funds? With the eager complicity of the credit rating agencies.

[The credit agencies] were the people who should have been shouting out warnings that a speculative bubble was building and should have ended the gambling, yet they kept saying that everything was wonderful... who pass muster on the likelihood that debts will be repaid -– now enjoy the power to determine whether the global financial system will again slide to the edge of doom. Yet, in a moment that now feels as laden with danger as any since the financial crisis of three years ago, the credit rating agencies get to decide whether the world blows up.