Brown eyes rating firms

California AG Jerry Brown says his office will look into whether Moody's, Standard & Poor's and Fitch violated state law when they "recklessly gave stellar ratings to shaky assets." Subpoenas have already been issued. The companies gave their highest ratings to securities that were often backed by subprime mortgages, making them "appear as safe as government-issued Treasury bonds," Brown said in the statement.

"In rating these securities, these agencies worked behind the scenes with the same Wall Street firms that created them," Brown said. "For their work, the agencies earned billions of dollars in revenue, at a rate double what they earned for rating other financial products."

This isn't exactly an earth-shaking revelation, many months after the firm's roles were first raised, and so questions are bound to be asked about why Brown, a candidate for governor, is suddenly getting interested in the subject. As it turns out, there is some non-political context for the subpoenas. From Bloomberg:

The announcement follows a federal judge's ruling this month rejecting arguments by Moody's and S&P that investors can't sue over deceptive ratings of private-placement notes because those opinions are protected by free-speech rights. The ruling forces those companies to respond to fraud charges in the class-action lawsuit filed in New York by investors claiming the raters hid the risks of securities linked to subprime mortgages.