Part of the reason why credit ratings firms did not catch major problems prior to the global financial meltdown of 2008 was because they were paid by the firms that they rank,which creates
A)economies of scale.
B)synergy.
C)a conflict of interest.
D)cooperation.
E)efficiency.

Question

Quizplus · Accepted Answer

When credit rating firms are paid by the firms they rank, it creates a conflict of interest. This means that the credit rating firms may be influenced to give higher ratings than what is warranted in order to maintain a good relationship with the firms that pay them. This conflict of interest was a contributing factor to the failure of credit rating agencies to catch major problems prior to the global financial meltdown of 2008.

Part of the Reason Why Credit Ratings Firms Did Not