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Thursday, August 18, 2011

Fraud at S&P: A Conflict of Interest

By the summer of 2011, the U.S. Government had brought relatively few cases against large financial institutions for their roles in the financial crisis of 2008. For instance, the government investigated Washington Mutual and Countrywide without taking any further action in spite of reports of “liars’ loans.” In the case of the three major ratings agencies, the business model “is riddled with conflicts of interest, since rating agencies might make their grades more positive to please their customers. Before the financial crisis,” according to The New York Times, “banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with [one of the agencies].”

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.