"(T)o say that the individual is culturally constituted has become a truism. . . . We assume, almost without question, that a self belongs to a specific cultural world much as it speaks a native language." James Clifford

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,“banks shopped around to make sure rating agencies would award favorable ratings before agreeing to work with [one of the agencies].”[1] In spite of accounts of the agencies’ mixing of business and ratings, the Dodd-Frank law of 2010 retained the issuer-pays business model while putting the agencies on the same legal liability level as accounting firms. 


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


1.  Louise Story, “Justice Inquiry Is Said to Focus on S&P Ratings,” The New York Times, August 18, 2011.