October 22, 2008 Credit raters get grilled on Capitol Hill Play video

(NECN: RD Sahl) - There's plenty of blame to go around for the economic meltdown. Today, a House panel investigating the crisis cast much of it on credit ratings agencies like Standard & Poor's for giving top ratings to securities backed by subprime mortgage loans.

Internal company documents revealed by a House investigative panel show that company executives were well aware that there was little basis for giving AAA ratings to thousands of increasingly complex mortgage-related securities but that the companies often vouched for them anyway.

The big credit ratings agencies - Standard & Poor, Moody's and Fitch, Inc. - made enormous profits as they issued ratings on a ballooning number of mortgage-related securities, many of which were given top ratings so long as housing prices went up. Now, S&P has downgraded more than two-thirds of its AAA-rated securities, while Moody's has downgraded more than 5,000 mortgage-backed securities.

The panel heard former ratings agency executives say there's an inherent conflict of interest in the industry because they're paid by bond issuers instead of investors who trust their ratings to make smart investments.

Internal company documents revealed by the panel show executives were aware that credit ratings were inflated.

*Material from the Associated Press used in this report*