Interest since the bond issuer has a large financial

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interest, since the bond issuer has a large financial stake in receiving a high rating on hislher bonds. (better rating = lower bond interest rate to be paid = large savings in finn's cost of capital). It is alleged that ratings finns catered to their paying clients by giving lenient ratings to lower-quality bonds, in an effort to increase demand for their rating services. Bond issuers could "shop around" for ratings agencies that gave them the desired high ratings. An expose by the McClatchy news group suggested that Moody's managers reprimanded analysts who applied strict standards in rating bonds, and rewarded/promoted those who gave lenient high ratings. During the real estate "boom" years, investors were eager to invest in the booming US mortgage market. Mortgages were packaged and resold as "CMO's" (collateralized mortgage obligations), then rated as "investment-grade" by Moody's et al, and sold to investors allover the world. Agencies that would normally never purchase "junk" bonds were lured into purchasing these securities, even though their underlying mortgages were of highly questionable quality. When the price of real estate began to decline, these securities began to default and became the now well-known ''toxic assets".
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  • Fall '09
  • Economy Weak Economy, economy Average economy, Weak Economy Exp, Average Economy Weak

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