Subprime Mortgage Crisis Solutions Debate - Conflicts of Interest

Conflicts of Interest

A variety of conflicts of interest were argued as contributing to this crisis:

  • Private credit rating agencies are compensated for rating debt securities by those issuing the securities, who have an interest in seeing the most positive ratings applied. Critics argued for alternative funding mechanisms.
  • There is a "revolving door" between major financial institutions, the Treasury Department, and Treasury bailout programs. For example, the former CEO of Goldman Sachs was Henry Paulson, who became President George W. Bush's Treasury Secretary.
  • There is a "revolving door" between major financial institutions and the Securities and Exchange Commission (SEC), which is supposed to monitor them.

A precedent is the Sarbanes-Oxley Act of 2002, which implemented a "cooling-off period" between auditors and the firms they audit. The law prohibits auditors from auditing a publicly traded firm if the CEO or top financial management worked for the audit firm during the past year.

Read more about this topic:  Subprime Mortgage Crisis Solutions Debate

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