Q: What role did rating agencies play in the credit collapse?
A: Credit rating agencies, or CRAs, have enjoyed quasi-regulatory status since the Great Depression. Inherent flaws in the system have survived repeated efforts at reform. By 2007, the entire infrastructure of securitized debt depended upon a handful of rating agencies whose conflicts of interest were manifest.
Their dismal performance in evaluating complex securities, compounded by a systemic dependence upon their ratings, is central to understanding the credit collapse.
Three players dominate: Standard & Poor’s, Moody’s and Fitch. These agencies were granted the imprimatur of “Nationally Recognized Statistical Rating
Organizations” by the Securities and Exchange Commission in 1975.