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The California Attorney General's Office has launched an investigation into the role played by ratings agencies in the financial meltdown.
In very brief sketch, when a corporation, state, municipality, or other entity issues debt, that debt often comes with a rating from a ratings agency such as Moody's, Standard & Poor's or Fitch. The rating is meant to indicate the likelihood that the debt will be repaid. The same thing happens when investment banks bundle up and issue securities, including the now loathed subprime motgaged backed securities blamed for touching off the worst financial crisis in a generation.
Like many, the question California's Attorney General wants answered is how so many of those securities backed by bundles of risky mortgages were sold with AAA ratings, and whether cozy relationships between ratings agencies and investment banks were to blame.
California is by no means the first to the party. Other states, including New York and Connecticut are investigating. Investors, including the California Public Employees Retirement System, have also sued the ratings agencies.
Here's what Attorney General Jerry Brown wants to know regarding the ratings agencies:
California has subpoenaed Standard & Poor's, Moody's and Fitch in search of answers.
Whether and how they would be held to account if the answer to those questions is yes remains a somewhat open question.
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