Rating Agencies Settle: What About Auditors?

I've written about the rating agencies and their conflicts and complicity in the credit crisis. 

There is also an unholy alliance between the rating agencies, their auditors and the companies bonds they rate and the auditors of these companies.  The Big 4 are all over all of it.  

 

And yet, no regulator or congressman or other politician will raise the issue of these conflicts.

 

And what about the fact that the auditors are paid by the companies whose financial statement integrity,  fairness, and accuracy they rate?  Somehow that's ok?  

 

If the mortgages were not being valued properly by companies and banks, who is the final judge?  The Big 4.

 

If the rating agencies were not following appropriate due diligence policies and therefore inflating fees based on bogus or conflicted business practices, who is the final judge?  Their auditors, the Big 4.

 

And what about the bond insurers?  Who audits them?  The Big 4.

 

And who audits the Treasury and Department of Justice?  The Big 4.

S&P agrees to settlement over business practices

Major credit rating agencies were a step closer Tuesday to settling with New York Attorney General Andrew Cuomo to overhaul business practices in the aftermath of the subprime mortgage crisis.

Standard & Poor's, the world's largest rating agency, said late Tuesday that an agreement has been reached with Cuomo's office. However, final details were still being worked out and an official deal could be announced as soon as Wednesday...Moody's Investors Service and Fitch Ratings, the other two major agencies, did not comment about the negotiations.

Cuomo has been probing how all three agencies charge fees to the very bond issuers asking for ratings. The agencies have been criticized for failing to accurately assess — and warn investors about — the risks that mortgage investments posed to financial markets....Lawmakers in Washington and other critics say the agencies are vulnerable to conflicts of interest because they are paid by the companies whose bonds they rate. In response, the rating firms have announced steps to strengthen protections against conflicts...

Comments

[Yo Bob:]

So what is your solution to avoid the company vs auditor payment-for-services conflict (something that you forgot to mention a solution)?

If the company isn't to pay for the auditor, thereby avoiding the conflict, who are you suggesting will pay for it?

Big hole in your blumb. Huge hole.

2008 Jun 08 01:29 PM