DOJ Going After S&P

FINALLY DOJ going after S&P for bogus ratings circa ’04-’07 @ $13 million a pop.

Now trending: S&P Rating agency finally being called to the carpet over mortgage securities ratings. The NYT, Post, WSJ and just about everyone else is all over it. This debates been on for some years now, but there’s been little question all along that (a) S&P’s high ratings of mortgage securities during the bubble turned out to be way off (b) investors blindly relied on the ratings to invest billions, (c) it’s appeared for some time that S&P knew investors were relying and that their methods were flawed and (d) the motive was money – about $13 million a pop to be exact.Since day one the ratings agencies have defended these civil threats by claiming their ratings were nothing more than “opinions” protected by the First Amendment right to free speech. Yesterday the DOJ finally filed fraud charges and dozen state prosecutors are expected to join in as other investigations continue. Given the high ratings were issued to deliberately (or at best negligently) to entice investor reliance and garner big money for S&P, these ratings were clearly more than innocent opinions. Its too bad what new rules and reforms we do have that impact ratings agencies have been put in the works before all the facts surrounding this investigation were made public. This legislation and others like it will no doubt be part of the DC dialogue in the coming months. I wrote about ratings agencies extensively in Foreclosure Nation: Wall Street’s flawed assumptions, originating for investors, rules the removed investments like this even further from reality, investor’s false sense of security (and we’re not just talking about rick investors, lots of this stuff was bought by pensions and others playing with real people’s money!), the creation of the rating agency oligopoly, new models that allowed Wall Street to shop for ratings, How mortgage securities became a huge profit center for ratings agencies, and then why it took the ratings agencies so long to finally react to when mortgages began their nose dive. Foreclosure Nation began back in 2006 and was published in 2009. We've known about this for 7 years now, but the story was buried in the myriad of other bad guys on the proverbial radar screen. Maybe now it will get the attention it should have had back then.

Shari Olefson's picture
Shari Olefson

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