Burned by junk rated as triple-A

Ohio's attorney general is suing the top three credit rating agencies for the loss of nearly $500 million in the state's retirement and pension funds. Florida should consider a similar action.

Ohio had invested in mortgage-backed securities that had received the highest rating, triple-A, from Moody's Investors Service, Standard & Poor's and Fitch. But the agencies badly misstated the risks, a judgment that on a larger scale nearly brought down the entire financial system. Ohio's lawsuit claims the securities issuers and the rating agencies worked together to mislead investors.

The suit contends that since agencies don't receive full payment from the bond issuers until after ratings are issued, the agencies had an "acute financial incentive" to bend their standards of objectivity. And e-mail messages uncovered in congressional investigations have shown employees at the rating agencies suspected they were giving top grades to junk.

Florida also was badly burned by mortgage-backed securities. The state's investment pool for about 1,000 local governments bought at least $2.1 billion of these securities into 2007. The rating agencies vouched for them as being as safe as U.S. Treasury bonds. But in November 2007, the securities became toxic and the pool lost billions of dollars in paper value.

Florida was duped just as Ohio and so many other investors who thought they were being prudent by socking money in triple-A securities. A lawsuit is more than justified.