Question

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.

Answer 1

Credit rating firms did not catch major problems prior to the 2008 financial crisis because they were paid by the firms they were rating, creating a conflict of interest.

Step-by-step explanation:

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 conflict of interest. The credit ratings firms had a financial incentive to rate assets as safe, even when they were not, because they were being paid by the firms they were rating. This created a lack of independent and unbiased analysis and contributed to the financial crisis.