07:56 GMT18 February 2020
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    A former Justice Department official claims that levying fines on credit rating agency executives is insufficient to prevent frauds. In the run up to the 2008 financial collapse agencies inflated the ratings of mortgage derivatives in exchange for more business from banking institutions.

    WASHINGTON, (Sputnik) — Sending credit rating agency executives to prison would be more effective than levying fines to prevent companies like Standard and Poor’s (S&P) and Moody’s from fraudulently evaluating financial instruments, former Justice Department Deputy Associate Attorney General Michael Greenberger, told Sputnik on Tuesday.

    “The Justice Department portrays these fines as a lot of money, but when you look at the damage S&P and Moody’s did to the economy, with these inflated ratings of mortgage-backed securities, it’s a drop in the bucket. It will have no impact. The credit rating agencies aren’t suffering. However, when Wall Street executives go to jail, that’s the deterrent,” Greenberger said.

    Greenberger, who also served as a federal regulator of financial derivatives for the Commodity Futures Trading Commission (CFTC), said that although Moody’s is bound to meet a similar fate as S&P, which will pay over a billion dollars to settle fraud charges, the punishment does not fit the crime, “which brought the world economy to its knees.”

    In the run up to the 2008 financial collapse, Greenberger explained, these agencies inflated the ratings of mortgage derivatives in exchange for more business from banking institutions.

    “The banks had them over a barrel because they were paying for the ratings. When the credit rating agencies gave any indication that they weren’t going to do what the banks wanted, the banks threatened to go to another credit rating agency,” he added.

    However, despite giving “triple A ratings to these monstrously weak investments,” Greenberger noted, the United States has failed, since US President Barack Obama took office, to bring justice to Wall Street by imprisoning white-collar criminals.

    “This Justice Department, through the meltdown and since the recession, has essentially sought no jail time for anybody who has committed serious wrongdoing,” Greenberger said. “If somebody had to go to jail for this, things would change a lot.”

    S&P will pay $1.38 billion to settle claims of fraudulent rating activities leading up to the 2008 global financial crisis, S&P's parent company said in a press release Tuesday. In addition, the Justice Department is conducting an investigation of Moody’s for similar crimes, the Wall Street Journal reported on Sunday.

    S&P and Moody’s, both based out of New York, are the world’s two largest credit rating agencies. According to the US Securities and Exchange Commission (SEC), S&P had deliberately inflated grades of risky mortgage securities, and the agency was subsequently banned from grading bonds backed by commercial mortgages for one year.

     

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    Tags:
    Moody’s, US Department of Justice, S&P, Michael Greenberger, United States
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