New York Attorney General Andrew Cuomo is investigating eight banks to find out if they gave misleading information to Standard & Poor’s, Fitch Ratings and Moody’s Investors Service to inflate the grades of their mortgage securities.
"It's kind of the biggest mystery," New York Times Business Reporter Louise Story told WNYC. "How did those bonds, which turned out to be toxic, get Triple A ratings? And the Attorney General is looking into whether the banks misled the ratings agencies."
The New York Times reports the investigation includes Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is owned by Bank of America. The Attorney General's office delivered subpoenas to the banks about the investigation late Wednesday.
The banks did not respond for comment, but a Goldman Sachs spokesperson told The Times last month that "any suggestion that Goldman Sachs improperly influenced rating agencies is without foundation. We relied on the independence of the ratings agencies’ processes and the ratings they assigned.”
The investigation will also look at ratings agency workers who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved, according to The Times. "You can be a rating agencies worker and if' you're pretty senior there, you might make $200,000 or $300,000," Story said. "But then a bank like Goldman will come along and say, 'Oh, we can offer you something like a $1 million pay package if you come over here.' Some people think that that makes the rating agency workers less likely to really crack down on the banks because they're eyeing a job over there."