Billions of dollars in top-rated bonds backed by community banks have gone bust, debunking the defense offered by credit-rating agencies that wildly inaccurate ratings were limited to risky mortgage bonds that imploded and then triggered the U.S. financial crisis.
Government regulators and lawyers across the country are examining how credit-rating agencies came to bless as "investment grade" the now-toxic bonds made up of special securities issued by community bank holding companies.
During the go-go years preceding the December 2007 start of the worst modern recession, more than $50 billion of these special securities were floated by community banks and pooled into complex instruments called collateralized debt obligations, or CDOs.
From 2000 to 2008, Moody's Investors Service rated at least 103 of them, valued at $55 billion, issued by banks, insurance companies and real estate investment trusts.
Today, many of these securities are virtually worthless.
Fannie Mae (FNMA), the mortgage-financier seized by U.S. regulators in 2008, will pay the Treasury Department...
