Several members of the Senate Banking Committee questioned rating agency executives about whether they provided advice to investment banks that issue complex mortgage securities tied to subprime home loans.
"It seems to me that credit rating agencies are playing both coach and referee," said Sen. Robert Menendez, D-N.J.
The rating agencies' seal of approval effectively concealed the true risks of those investments, lawmakers said. Several senators compared the agencies' lack of foresight about the risks inherent in the subprime mortgage market with their failure to anticipate the collapse of Enron Corp. and WorldCom.
Democratic and Republican senators said they were particularly concerned with a key aspect of the agencies' business models: they get paid by the companies whose bonds they rate. That's like a film production company paying a critic to review a movie, and then using that review in its advertising, Sen. Jim Bunning, R-Ky., said.
