The global financial crisis has put Credit Rating Agencies (CRA) in the limelight as they failed to give investors adequate warnings of the risks involved in mortgage-backed securities and other structured products. In the aftermath of the US subprime crisis, rating agencies were widely blamed for their generous ratings of dubious mortgage-linked securities during the credit boom. Their ratings did not reflect the true risks inherent in these securities which are now suffering badly. Analysts who reviewed the causes of the global financial meltdown concluded that CRA were the major factor behind the crisis. Critics say much of the problem is that rating agencies are paid by the companies to slap high marks on their securities, which did not deserve them. Besides, many investors placed blind faith on these ratings instead of conducting enough checks on their own. Even today, some investors continue to treat credit ratings as semi-official judgment.

CRA were widely blamed for misleading investors by giving a triple-A rating to troubled subprime mortgage securities. In 2008, at least 10 of the big companies that failed had investment-grade ratings. For instance, Moody's rated Lehman Brothers' debt in the investment grade range just days before it filed for bankruptcy. In fact, the issue of the conflict of interest built into the rating agencies' business model and their ratings have been misleading the investors for a long time. While some problems are indeed structural, there are more basic issues of risk-taking behavior, which cannot be changed simply through regulation and incentives. According to a survey which assessed the rating market, CRA are not valid and are not helpful in making investment decisions. Industry watchers say that unless the fundamental problem of conflicts of interest is resolved, we are going to see serial failures.

The Analyst Magazine, Credit Rating Agencies, CRA, Global Financial Crisis, Market Turmoil, Securities Exchange Commission, SEC, International Organization of Securities Commissions, IOSCO, Nationally Recognized Statistical Ratings Organization , NRSRO, Investment Decisions, Credit Assessments, Financial Incentives, Subprime Mortgage Securities.