The increasingly urgent transition from the current rating oligopoly towards a more transparent and efficient system took a small step forward in the last few hours when the New York Times reported that the US Justice Department is investigating the role played by Standard & Poor's in the devastating subprime mortgage crisis.
The civil and non-criminal investigation would have started well before the controversial downgrade of the US public debt decided in recent days by S&P's and at the moment it is not known whether it also involves the other two big names in the sector: Moody's and Fitch.
Reporters from the US newspaper spoke to two people who have already been questioned and a third who knows about the investigation. The investigators' hypothesis is that S&P's voluntarily, and not due to an error of assessment, assigned a higher rating than necessary to securities whose value was linked to the performance of mortgage packages which later turned out to be, as they say in technical jargon, "garbage".
According to what is contained in the survey, cases of negative ratings expressed by Standard & Poor's analysts are emerging which, before being made public, would have been at best "embellished" and at worst canceled and transformed into positive ones by the top management of the agency.
If proven, the allegations would deal a devastating new blow to the credibility of S&P's, which to this day has survived its glaring errors of judgment (when it awarded triple-As to toxic stocks) and calculations (when it spectacularly miscalculated that the 'pushed to lower the US debt rating) only thanks to the lack of competition in the sector in which it operates.
The suspects of the investigators is that Standard & Poor's, which is paid to issue its judgments by the same subjects to which it must assign a rating, was giving away positive report cards for the sole purpose of attracting new customers in need of not too severe analyzes of their own solvency.
According to a growing number of observers, the transformation of the bankruptcy rating system that contributed to creating the current crisis must go through the resolution of the conflict of interest between subsidiaries and controllers. A possible solution, dictated by common sense as well as by the havoc of recent years, could pass through the transformation of the business model of the rating agencies, no longer financially dependent on whoever places a security, but on whoever has to decide whether to invest in that security.
