A new investigation from iWatch News has found that Koch Industries, a leader of industry resistance to proposed anti-terrorism safeguards at chemical plants, owns 56 facilities using hazardous chemicals that put 4.8 million Americans who live nearby at risk.

The financial meltdown of 2008 had many architects. The credit rating agencies, which bestowed the highest grades on pools of toxic mortgages, may bear the most blame.

The Financial Crisis Inquiry Commission concluded that the rating agencies were “essential cogs in the wheel of financial destruction” and that the crisis “could not have happened without the rating agencies.”

With the new disclosure that the Department of Justice is investigating whether Standard & Poor’s improperly boosted ratings, iWatch News took a look at what government investigators and former employers have said about the inner workings of the agencies. While S&P appears to currently be in the government’s crosshairs, far more is known about what went on behind the scenes at Moody’s, S&P’s biggest rival.

This partly owes to an investigation of Moody’s by the Securities and Exchange Commission. The SEC looked at whether Moody’s had purposefully failed to downgrade a group of derivatives worth about $1 billion even after it learned that the company had made a mistake in its analysis of the products’ worth.

The most damning evidence appeared in the form of an email from a Moody’s managing director.

“In this particular case we seem to face an important reputation risk issue,” the managing director wrote in an internal email. “To be fully honest this issue is so important that I would feel inclined at this stage to minimize ratings impact…rather than even allow for the possibility of a hint that the model has a bug.”

The stock market is in a tailspin after the U.S. government lost its AAA credit rating for the first time in history, raising echoes of the catastrophic Wall Street fallout three years ago.

But how did it all begin? Who were the key players? Where do regulators go from here? Here, we recount the Center for Public Integrity’s top stories on the 2008 financial meltdown and the subsequent market and government response.

Subprime mortgages underlying the road to financial ruin (May 6, 2009) – Just how did we get into this mess? Multiple factors have been cited: “blame, irresponsibility, lax government oversight, conflicts of interest and especially blind faith in a housing boom that seemingly had no end.” But fueled by subprime lending, the boom ended in bust. Borrowers took out too many loans they couldn’t afford, housing prices tanked, and by the summer of 2007, the subprime industry had all but disappeared because big banks had cut off access to credit. The government responded by promising to use taxpayer money to buy so-called “toxic” mortgage assets from banks so lending could start again. On Oct. 3, 2008, President Bush signed the $700 billion Emergency Economic Stabilization Act into law. Calls for increased regulation over the financial and housing industries would later yield stricter legislation.

Top 25 subprime lenders (May 6, 2009) – The top 25 subprime lenders accounted for nearly $1 trillion of subprime loans, about 72 percent of the high-priced loans reported to the government at the peak of the subprime market. The leader in lending was Countrywide Financial Corp, responsible for at least $97.2 billion, followed by Ameriquest Mortgage Co./ACC Capital Holdings Corp with at least $80.6 billion and New Century Financial Corp. at $75.9 billion.

Some big U.S. companies have used the same auditing firms for decades, while others like Procter & Gamble and General Electric have each kept the same firm for more than a century.

Those long-time, cozy relationships have some critics urging the U.S. Public Company Accounting Oversight Board to encourage tougher, more independent audits by requiring a periodic rotation in auditing firms hired by companies, Reuters reports. 

"When you look at some of the big audit failures over the years, whether it's Enron or Waste Management, you find instances where they've had the same auditor for in some cases decades," said Barbara Roper, head of investor protection for the Consumer Federation of America.

But the Big Four accounting firms -- Deloitte, Pricewaterhouse Coopers, KPMG and Ernst & Young -- are likely to fight any mandatory rotation, which could rob them of lucrative and loyal clients. The firms also contend that good auditing work comes from a detailed understanding of a client company’s operations, which takes time to acquire.

Currently, the partner on an auditing job must be switched every five years, but there is no term limit on the audit firms themselves.

CFTC pick moves forward – The Senate Agriculture Committee yesterday approved President Barack Obama’s Democratic pick for the newest member of the Commodity Futures Trading Commission, an agency tasked with writing rules for the $600 trillion over-the-counter derivatives under the Dodd-Frank financial reform law.

The Securities and Exchange Commission has a mechanism to allow financial companies “exemptions” from financial laws. But it allows those companies to essentially police themselves and a report by the SEC inspector general suggests those companies might not be doing a very good job.

From January 2008 through March 2010, the SEC’s Office of Compliance Inspections and Examinations, or OCIE, launched 477 investigations into companies that had been granted exemptions. In some cases, a company had been issued a so-called exemptive order, allowing them to undertake an activity otherwise forbidden by SEC regulations. In others, it was a no-action letter, in which an SEC staffer indicated that a particular course-of-action that otherwise might run afoul of regulations wouldn’t yield any enforcement activity.

In one example cited in the report, a financial company asked for permission to distribute capital gains to its shareholders more frequently than permitted under law. A no-action letter cited in the report suggested that investment companies could lend their portfolio securities.

In these special cases, the exemption is contingent on the company adhering to strict conditions. But the report found that the SEC agencies setting those conditions don’t follow up to make sure that companies comply with those rules. Rather, investigations are carried out exclusively by the OCIE, with no formal sharing of information between other divisions and that office to indicate when exemptive orders or no-action letters have been issued.

The report looked at 72 of the 477 examinations flagged for the presence of an exemptive order or no-action letter, and found that companies had violated the conditions of the order or letter more than 60 percent of the time.