Rating Victims Didn’t Know S&P’s Toxic AAA Born of Greed

By Jody Shenn - Feb 11, 2013

When Charles O. Prince III was chief executive officer of Citigroup Inc. from 2003 to 2007, he didn’t know about a surge in mortgage risk that his own investment bankers loaded on to its bank’s books.

Because such debt carried top credit ratings from firms such as Standard & Poor’s, few financial executives paid attention to the potential dangers.

“If someone had elevated to my level that we were putting, on a $2 trillion balance sheet, $40 billion of AAA rated, zero risk paper, that would not in any way have excited my attention,” Prince told the Financial Crisis Inquiry Commission, according to a transcript of his testimony released in 2011.

Mortgage securities granted top grades started souring in 2007, leading to ballooning losses. Citigroup required a $45 billion federal rescue, the largest of the bank bailouts that put taxpayer money at risk. The Justice Department sued New York-based S&P and parent McGraw-Hill Cos. last week over the damage caused by the practices allegedly behind the inflated rankings that contributed to the biggest financial crisis since the Great Depression.