Thomas J. Pate


This article analyzes the role the Credit Rating Agencies (CRAs) played in developing markets for certain types of asset-backed securities in order to identify how the CRAs promoted the leverage build up that occurred over the past 15 years. This analysis will highlight the fundamental flaws in the ratings process, with a view toward being able to assign responsibility accordingly. Further, the motivations of banks, financial institutions, and corporate issuers in relying on the CRAs will be critiqued. Additionally, the principal past and current in-court claims against the CRAs will be analyzed and hypotheses will be drawn on the liability that may await the CRAs for their involvement in assisting the credit crisis. Finally, several proposals for legislative reform will be suggested and conclusions will be offered on the future role CRAs may be expected to play.