Richard Blumenthal (D)
HARTFORD, Conn. (Legal Newsline) - The big three credit rating agencies helped create the current economic meltdown by overrating risky securities, Connecticut's attorney general said.
Attorney General Richard Blumenthal is investigating credit rating agencies Moody's, Fitch and Standard & Poor's for unfairly receiving up to $400 million from a Federal Reserve bailout program.
"The old boys' club must be closed. A corporate culture and camaraderie that protects prerogatives and profits while shutting out competition and scrutiny is no longer acceptable -- or affordable," Blumenthal said. "Main Street Americans expect honest, fair and open markets, not rigged rules that enrich a few powerful insiders. Credit rating agencies and others responsible for this economic catastrophe must be held accountable -- and prevented from repeating practices that brought our economy to the brink."
Blumenthal has asked Federal Reserve Chairman Ben Bernanke to revise the program to give the seven smaller competitors the ability to compete for work against Moody's, Fitch and Standard & Poor's.
The $1 trillion Term Asset-Backed Securities Loan Facility, created by the Federal Reserve to restart consumer lending, requires new securities to be rated by two or more "major nationally recognized statistical rating agencies."
Only Moody's, Fitch and Standard & Poor's fit the criteria, leaving the remaining competitors out of the running for as much as $400 million in possible fees.
"This potential $400 million windfall overpays the Big Three raters and undercuts competitors -- another money reward for failure," Blumenthal said. "The same Big Three that overrated bonds now regarded as toxic assets will be rating new bonds issued to restart lending and solve the economic crisis they helped create. The Federal Reserve is rewarding the same companies who helped burn down the house, in effect steering them cash to rebuild what they destroyed."