"California Attorney General Edmund G. Brown Jr. began an investigation into three major US credit-rating companies and their role in the financial crisis, in part to determine whether the firms violated California law", Tess Stynes at the WSJ, 18 September 2009, link: http://online.wsj.com/article/SB125321131860920357.html.
"[EK], the former Moody's Corp. analyst who this week went public with allegations of inflated credit ratings, plans to tell a congressional committee on Thursday that the ratings industry is still hampered by conflicts of interest. He also believes the 'credit policy' and 'compliance' groups at [MIS] lack independence and are short-staffed, and analysts get 'routinely bullied' by business line managers, according to a draft of his testimony. ... Over the past year, he has given presentations within and outside Moody's on the causes and lessons of the financial crisis, detailing problems such as 'ignored incentives,' and overreliance on quantitative models, the highly complex nature of many financial instruments, and regulations that were inconsistently applied, according to a copy of his presentation", Serena Ng at the WSJ, 24 September 2009, link: http://online.wsj.com/article/SB125375108331535851.html.
"Credit-rating firms came under pressure as lawmakers and regulators renewed scrutiny of the ratings process. ... A Moody's spokesman said the company 'takes very seriously all allegations of impropriety,' and a review into Mr. Kolchinsky's most recent claims is in process. The spokesman said Mr. Kolchinsky's previous claims were found ny Moody's to be unsupported. ... [EK] also wrote that he fears that conflcits of interest, which arise bwecause Moody's is paid by debt issuers to rate securities, have become worse in recent months. the group that rates complex securities takes 'analytical short-cuts in their quest for revenue,' he wrote", Serena Ng, Sarah Lynch and Leslie Scism at the WSJ, 25 September 2009, link: http://online.wsj.com/article/SB125382176881638625.html.
This is another example of why we need federalism. It will be more difficult to capture all 50 state insurance regulators than the "systemic federal regulator".
Brown, good luck.
Aren't we impressed with MIS internal investigations. Did John Ashcroft do them? David Kotz may have a place at MIS if he gets pushed out of the SEC. CPAs have had SAS 22 since March 1978, now superceeded by SAS 108. So? SAS seemed to prohibit retaliation against CPAs for holding differences of opinion. Hahahahahahaha.
What? Incentives Count? How dare you? Analysts getting "bullied"? It sounds like EK worked for a Big 87654 firm.
As long as ratings agencies are paid by issuers, the conflcts of interest will remain. It like how CPA firms are paid. I'm sure MIS takes allegations of impropriety seriously. After they become lawsuits.