Frank Partnoy is George E. Barrett Professor of Law and Finance and Director of the Center for Corporate and Securities Law at University of San Diego School of Law. This post is based on his recent article, forthcoming in the Washington Law Review.
Scholars and regulators generally agree that credit rating agency failures were at the center of the 2007-08 global financial crisis. Government investigations found that the credit rating agencies, particularly Moody’s and S&P, were central villains and that the crisis could not have happened without their misconduct. The Financial Crisis Inquiry Commission called the ratings agencies “key enablers of the financial meltdown.” The U.S. Senate Permanent Subcommittee on Investigations concluded: “Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis.” The Securities and Exchange Commission and the President’s Working Group on Financial Markets reached similar conclusions.