The Senate Permanent Subcommittee on Investigations discovered evidence on Friday that suggests top credit-rating agencies such as Standard & Poor and Moody’s accepted higher fees in exchange for tweaking their ratings on some of the biggest banks.

Ratings Integrity Compromised

According to subcommittee chairman Senator Carl Levin (D-Mich.), emails between credit rating agencies and large banks such as Merrill Lynch show that the firms were engaged in fee negotiations over ratings, even in some instances playing different rating agencies off each other in a sort of bidding war over ratings changes.

Both S&P and Moody’s have released statements that testify to the quality and integrity of their ratings, saying they have a commitment to transparency and a strict methodology in rating securities. A hearing today will interview executives from both agencies.

Mislabeling CDOs

Many of the securities that were considered to be rated inappropriately were collateralized debt obligations, which are a collection of mortgage securities that are pooled together and resold to investors as a complex security with a higher risk and return. While the process of repackaging mortgage securities is common, the question is whether rating agencies knowingly mislabeled some of these CDOs in exchange for higher fees.

Some case studies that will be brought before the committee are a $1.5 billion issuance by Vertical, a company affiliated with Bank of America, and another $1billion deal offered by Goldman Sachs. Both securities were initially given high ratings by credit rating agencies, but were downgraded within a few months.

An email written by an S&P employee over a year before the financial crisis give evidence to the fact that many knew that the practices were unsustainable, and was destined to collapse. “Rating agencies continue to create an even bigger monster – the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters,” the email reads.

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