Cause GFC, refuse to apologise
THE world's biggest credit ratings agencies came under heavy fire this week, as they repeatedly refused to apologise to MPs for the debacle over the toxic mortgage-backed instruments which triggered the global financial crisis.
Senior bosses from Moody's, Standard & Poor's, Fitch and smaller rival DBRS - appearing after the Treasury Select Committee launched an inquiry into rating agencies - were also accused of running a 'racket' at an ill-tempered hearing.
Ratings agencies have come in for huge criticism since the credit crunch struck in 2007 over the gold-plated AAA ratings bestowed on thousands of complex, financial products backed by hugely risky sub-prime mortgages, in return for huge fees from investment bankers.
But Moody's European chief Frederic Drevon and Standard & Poor's managing director Dominic Crawley would only express 'regret' and 'dissatisfaction' for failures over the sub-prime bonds which infected the global banking system.
Mr Crawley said: "We have repeatedly over a number of years expressed our regret about the assumptions built into our sub-prime models."
"We, like many others in the market, did not foresee the severity of the downturn in the US."
Mr Drevon admitted that during the build-up to the credit crunch, bond issuers would 'shop around' the agencies to get the best credit rating for their products.
MP Jesse Norman asked Mr Drevon: "You don't share my view that this was a racket?"
The witnesses repeatedly stressed buyers should not rely on credit ratings alone before making investments, but this sparked fury from Wyre Forest MP Mark Garnier, whose district council lost (pounds sterling)9m in failed Iceland banks in 2008.
"We're talking about libraries being closed down as result of people relying on you guys," he said.
Committee chairman Andrew Tyrie added: "It does appear that you have left the committee unconvinced that many of the problems attached to the risk ratings agency in 2008 have yet been adequately addressed."
He said the committee was 'deeply concerned' over a lack of competition and conflict of interests within the rating sector.