Rating agencies called to answer for failures

Finally, there is some action to make those responsible for the global financial meltdown to answer for their wrongdoing.

Standard & Poor’s, the ratings agency has stated that it is to be sued by the US government as a result of its assessment of mortgage bonds before the financial crisis. The suit will be taken as a civil action against the company.

When it proceeds, the suit will be the first such case over alleged wrongdoing by a ratings agency tied to the financial crisis. Several US states are expected to join the suit.

S&P and other agencies have faced a barrage of criticism from investors, politicians and regulators for assigning their top AAA ratings to thousands of subprime and other mortgage securities that later collapsed in value. It was these generous ratings that permitted the sale of extremely high-risk investments to flood the world markets and ultimately cause the near collapse of the world financial system.

Raising concern about potential conflicts of interest, agencies such as Standard & Poor’s ware paid by the issuers of bonds and other securities for ratings.

Grades assigned by ratings firms can affect a company’s ability to raise or borrow money as well as how much investors will pay for their securities. The same principle applies to bonds issued by sovereign governments across the globe.

During 2011 and 2012, at the peak of the euro currency crisis, various euro area governments were highly critical of ratings agencies for negative comments and ratings on the viability of the euro and countries ability to remain within the currency union.

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