Concept

Issuer-pays model

A way of paying for credit ratings: the party selling the security pays to have it rated.

4 links, 4 backed by primary records

How each side tells it

Connections 4

Financial crisis of 2008 According to Senate Permanent Subcommittee on Investigations Primary record 1
In two steps: the report calls the conflict one significant cause of the inaccurate ratings, and says the inaccurate ratings were a key cause of the crisis.
Financial crisis of 2008 According to Financial Crisis Inquiry Commission Primary record 2
In two steps: the commission concludes the pay model undermined the ratings, and that the crisis could not have happened without the agencies.

Moody's Primary record 1
The report says the rating agencies as a group changed to this model in 1970.
Standard & Poor’s Primary record 1
The report says the rating agencies as a group changed to this model in 1970.

Proof 2 sources

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse (majority and minority staff report), Senate Permanent Subcommittee on Investigations, 13 Apr 2011. Primary record Archived copy
One significant cause was the inherent conflict of interest arising from the system used to pay for credit ratings.
Inaccurate AAA credit ratings introduced risk into the U.S. financial system and constituted a key cause of the financial crisis.
In 1970, the credit rating agencies changed to an “issuer-pays” model and have used it since.
The Financial Crisis Inquiry Report (final report incl. dissenting statements), Financial Crisis Inquiry Commission. Primary record
The business model under which firms issuing securities paid for their ratings seriously undermined the quality and integrity of those ratings
This crisis could not have happened without the rating agencies.

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