EU ordered an investigation into the conduct of credit-rating agencies ... [who misrated bonds and are paid by the banks / conflict of interest

Trouble Tracks Far and Wide | Probe Is Urged As Slide Deepens From Paris to Tokyo | By Molly Moore | Washington Post Foreign Service | Friday, August 17, 2007; Page D01
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The European Union's executive arm on Thursday ordered an investigation into the conduct of credit-rating agencies and their failure to respond more quickly to the impact of U.S. loan defaults on financial markets. The inquiry will specifically examine whether the agencies played down the potential for problems because of conflicts of interest, E.U. officials said.

Credit-rating agencies such as Standard & Poor's, Moody's Investors Service and Fitch Ratings are paid by banks to assess the creditworthiness of the securities that the banks issue.

The agencies have been under fire -- in the United States and Europe -- because throughout the housing boom they gave top rating to securities backed by risky mortgages, allowing Wall Street banks to easily sell those securities to investors. Those securities have plunged in value as defaults on subprime mortgages have jumped.

On Thursday, the three major rating agencies sped up their downgrades of mortgage-backed securities. ...