MercoPress. South Atlantic News Agency

Mortgage buble: risk rating agencies to be grilled by US Senate

Credit rating companies must “shoulder some responsibility” for sub-prime mortgage bonds that have sparked a crisis in credit markets said United States Senator Richard C. Shelby, the Senate Banking Committee's top Republican.

Moody's Investors Service, Standard & Poor's and Fitch Ratings face US congressional scrutiny for an "inherent conflict" in helping construct loan-backed securities then issuing ratings on them, Shelby told reporters in Brussels. "The credit rating agencies have played a central role in the sub-prime debacle," said Shelby, of Alabama, who is visiting European officials. "They say that they are only giving an opinion. But they are also consultants to a lot of these companies that have issued this debt, and they have rated it, and that's how they make money." Shelby's comments add to pressure on the rating companies from both parties in Congress after a rout in securities backed by sub-prime mortgages spread across global markets. "Much of the blame for the crisis can be tracked to credit rating agencies, their "conflicts of interest" and the misjudging of sub-prime loans risks". Shelby also forecasted that the sub-prime lending crisis in the US will deepen before it blows over and warned that some firms would "not survive" the current turmoil. Shelby said that floating interest rates on dodgy loans causing the crisis were due to begin rising soon. That would in turn spark more defaults, causing the crisis to worsen. "I think it'll get worse before it gets better. It has to" he told reporters in Brussels. Although the crisis had "sent the word out that the easy credit bubble is probably over", Shelby said however that "it doesn't mean that our economy can't absorb" the current problems. He praised the US Federal Reserve's decision on Friday to cut its short-term interest rate on loans to commercial banks, stressing that "liquidity In our financial system is very, very important". Nevertheless, the senator warned that "there will be firms that will not survive," predicting that "there will probably be some of the hedge funds that are loaded with some of the sub-prime debt caught in there."