US turns the tables on Standard & Poor's

Ratings agency Standard & Poor's looked to be paying the price for daring to strip the US of its AAA credit rating today amid reports of a probe into its ratings of toxic mortgage-backed bonds before the credit crunch.

The Justice Department is investigating whether the agency improperly rated dozens of the mortgage securities which seized up world's financial system in 2007, the New York Times says.

The investigation will add to the political pressure on S&P following its downgrade of the US earlier this month, which added further fuel to the havoc in global markets and drew fierce criticism for its timing. S&P has concerns over the ability of the world's biggest economy to cut its deficit, although rival Fitch affirmed its own AAA rating on the US.

Rating bundles of mortgage-backed loans was a money-spinner for the agencies in the run-up to the crisis, but the practice came under intense scrutiny as investment banks shopped around to gain the best credit score for their products. But the collapse of the housing market in 2007 left many apparently gold-plated bonds based on home loans virtually worthless.

According to the Times, the Justice Department is looking at instances where the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers.