Ex-Treasury Chief Paulson Criticizes Ratings System (Update1)
May 06, 2010, 11:42 AM EDT(Updates with comments from Paulson in final two paragraphs.)
By Ian Katz
May 6 (Bloomberg) -- Former U.S. Treasury Secretary Henry Paulson said credit-rating companies were “a dangerous crutch” that too many investors and banks depended on before the global financial crisis.
Companies such as Standard & Poor’s, Moody’s Investors Service and Fitch Ratings “should give their advice just like equity research houses do, and I think investors should look at those as one tool,” Paulson said today at a hearing of the Financial Crisis Inquiry Commission in Washington. “I don’t want the ratings agencies to be held up as the font of all truth and have the ratings be part of our securities laws.”
Legislation being debated in Congress to overhaul U.S. financial regulations would require greater disclosure about how much money ratings firms receive from Wall Street, force regulators to reduce their reliance on credit-rating companies and make it easier for investors to sue the firms.
Mortgage bonds that received top rankings from Moody’s, Standard & Poor’s and Fitch began souring in 2007. The companies were criticized by lawmakers for helping Wall Street sell the debt, spurring a financial crisis that has cost global financial companies more than $1.7 trillion.
Paulson, 64, said that his mistakes in office where mostly those of “communications” to the public about the government’s efforts to save the financial system. He also said that future financial crises probably are unavoidable.
“I think as sure as we’re sitting here today, the next crisis is inevitable,” he said. “I don’t think it’s going to happen right away, but there will be stresses and problems in the capital markets sometime in the future, probably in our lifetimes again. And so the key thing is how to have those be relatively small, manageable events.”
--With assistance from Jesse Westbrook in Washington. Editors: Brendan Murray, Vince Golle
To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
