Wall Street ratings firms had an incentive to give overly glowing ratings to collateralized debt obligations because the firm received a higher fee for giving higher ratings.

Question

Quizplus · Accepted Answer

Ratings firms, such as Moody's and Standard & Poor's, were paid by the banks that issued collateralized debt obligations (CDOs) and other complex financial products. This created a conflict of interest, as the ratings agencies had an incentive to give higher ratings than warranted to please their clients and maintain lucrative business relationships.

Wall Street Ratings Firms Had an Incentive to Give Overly