http://www.reuters.com/article/2013/02/04/us-mcgrawhill-sandp-civilcharges-idUSBRE9130U120130204

Not exactly sure what legal traction or standing they have, presumably they would have to prove fraud since last I checked it's not a legal problem to have been wrong. Seems like just another attempt to punish wall street for the recession without having any real case. Somebody clue me in if I'm wrong, but this seems like a really weak suit.

2/4/2013 5:37:11 PM

You think Wall Street wasn't responsible for the crash? You think that S&P giving a AAA rating to mortgage-backed securities that were closer to being worthless than the price they were actually traded for had zero impact on creating an artificial bubble? Are you fucking retarded or do you just have no idea what you're talking about?

2/4/2013 5:54:27 PM

I don't think you can find legal culpability, that's what I'm saying. Unless there was legitimate fraud it's going to be damned hard to find something in established legal precedent for the lawsuit to work.

I also find it interesting that no other ratings agencies look to be named in the suit, only the one that downgraded the rating of US debt. Not at all suspicious looking.

They were wrong about the safety of mortgage backed securities. Everyone was.

[Edited on February 4, 2013 at 6:04 PM. Reason : sdfsdf]

2/4/2013 5:59:18 PM

I agree that nothing will probably come of this. If they're the only ones who get sued and lose, then maybe you can jump into conspiracy theories, but not until then. Didn't realize it was the DOJ doing this at first. That makes it more interesting.

The credit agencies are there to rate different financial instruments. The banks are there to make as much money as possible anyway they can. If you believe the agencies are the only ones deserving blame, then that's a pretty damning assessment of totally free market capitalism. A private bank rated by a private agency. I thought they were supposed to prevent things like this from happening. The truth is, it was a complete and total failure to properly regulate an industry which has terrible power to harm the entire world's economy.

[Edited on February 4, 2013 at 6:24 PM. Reason : ]

2/4/2013 6:13:54 PM

^^

How do you know this?

It's foolish to think there weren't backroom deals and shady transactions at the tops of the crisis.

People in this industry and lawyers are normally good about covering their tracks, but it only takes 1 person to squeal to make something happen.

I know it's optimistic, but considering how complex and particular an investigation of this nature if, i'm hoping this is part of a broader strategy on the part of the DOJ.

2/4/2013 7:14:50 PM

It is just as foolish to *think* that there WERE backroom deals and shady transactions. Unless you have proof, its all conjecture either way.

2/4/2013 7:18:53 PM

I wouldn't say it's "just as foolish."

Anyone who has worked through a bidding process will attest to how closely private companies stay just inside the letter of the law when conducting business.

It's not hard to imagine, when the stakes are even higher, what must go on in the business world to grease the wheels.

You don't really have to imagine really, just look at the lawsuits that have been settled over the past few years between the gov or citizens and businesses.

2/4/2013 7:28:33 PM

Quote :

"The credit agencies are there to rate different financial instruments. The banks are there to make as much money as possible anyway they can."

This statement demonstrates how biased you are. Being labeled a "bank" doesn't free an institution of any ethical concerns. The goal of a bank should be to make money, but not "any way they can" - it should be in any legal and ethical way they can.

What's that? Their unethical behavior was completely legal, condoned, and actually encouraged by the regulatory agencies that you expect to fix everything this time around?

Quote :

"If you believe the agencies are the only ones deserving blame, then that's a pretty damning assessment of totally free market capitalism. A private bank rated by a private agency. I thought they were supposed to prevent things like this from happening. The truth is, it was a complete and total failure to properly regulate an industry which has terrible power to harm the entire world's economy."

A private bank rated by a private agency, fueled by a very public monetary system. You can't really be this naive. It stops being "free market" when taxpayers are on the hook for every fuck up made by certain private institutions.

In a sprawling (yet unstable) financial system like ours, public perception and group psychology play a huge rule. It's very important that most people believe in the solvency and the fundamental soundness of financial institutions. The rating agencies are, I'm sure, acutely aware of their position. Once one rating agency actually does their job, the others will follow. Then panic sets in and there's a mad dash for the door.

Are the agencies in bed with the banks? I don't know. If they are, there's a case to be made that both are guilty of fraud.

[Edited on February 4, 2013 at 7:47 PM. Reason : ]

2/4/2013 7:39:05 PM

Australia has a case against S&P right now, too. Basically blaming them that they purposely misled certain cities and their investments. So it seems like there could be something to this and I think the DOJ is pretty careful on who it goes around suing. It should be interesting to compare the two cases and see how similar they are.

2/4/2013 9:34:45 PM

Quote :

"then that's a pretty damning assessment of totally free market capitalism"

hahahaha. he thinks we have "totally free market capitalism." That's why there's such incredibly high barriers to entry in the ratings market. look it up

2/4/2013 10:17:07 PM

Quote :

"Their unethical behavior was completely legal, condoned, and actually encouraged by the regulatory agencies that you expect to fix everything this time around?"

This is a really dumb way of saying that there was a regulatory failure.

Quote :

"hahahaha. he thinks we have "totally free market capitalism." That's why there's such incredibly high barriers to entry in the ratings market. look it up"

A private bank rated by a private agency. I thought they were supposed to prevent things like this from happening. The truth is, it was a complete and total failure to properly regulate an industry which has terrible power to harm the entire world's economy.

2/4/2013 10:59:17 PM

Here is a quick run-down of Australia's case against S&P

http://www.bbc.co.uk/news/business-20216638

Quote :

"Federal Court Justice Jayne Jagot said that both S&P and ABN Amro were "misleading and deceptive" in the rating of two structured debt issues in 2006, which she agreed were "grotesquely complicated". She said the agency had published false information and given "negligent misrepresentations" to potential investors about the riskiness of two financial products. The AAA rating conveyed a message that the likelihood of financial obligations being met was "extremely strong". It was also "a representation that S&P had reached this opinion based on reasonable grounds and as the result of an exercise of reasonable care when neither was true and S&P also knew not to be true at the time made," Judge Jagot said. The judge was also critical of the actions of ABN Amro, saying it was "knowingly concerned" in S&P's misleading and deceptive conduct, and used the AAA rating on its products to denote a reliability that it knew was not accurate. She pointed to errors and omissions throughout the rating process, including, in some cases, S&P not doing its own calculations and relying on the ones ABN had submitted about the likely performance of the products. ABN knew what it needed to tell S&P about the product in order to get the highest possible AAA rating, the judge said, and tried to persuade S&P to adopt its own inputs "in numerous communications", including five instances in which it wrongly asserted key pieces of financial information. "

So S&P just used the analysis the bank sent them to rate the product?

Quote :

"MF Australia, a company listed on the Australian Stock Exchange which funds legal claims, said the ruling was "likely to have global implications and be felt hardest in Europe and the US, where similar products were sold to banks and pension funds". "

Like I said I'm wondering if the DOJ has been building a case or if they are just gonna ride the coattails of the Australian ruling?

2/5/2013 8:45:07 AM

That definitely sounds shady. I bet there was wining and dining to get some of those AAA ratings. Well probably never know, but that process seems ripe for abuse.

2/5/2013 9:45:31 AM

Probably didnt need much dining. These were complicated financial instruments. Banks gave S&P a bunch of analysis and S&P was like "wow that's a lot of work, of course it's correct" and didnt think about it much. A lot of audits function the same way.

2/5/2013 9:59:23 AM

I imagine that it's a combination of the complexity and the lack of sufficient historical performance data to properly rate these securities. If I remember correctly, one of the issues was that many of the initial ratings were developed based upon data from the earlier end of the housing boom, back when loan screening was more diligent. Therefore, the performance of these devices was good because many of those who received loans were properly vetted and qualified. However, as the qualifications were loosened which increased the number of risky loans, the ratings agencies didn't seem to reflect these changes. Thus, when the housing bubble burst, the whole house of cards fell. Question is whether this is gross incompetence or if they intentionally kept using that old data to justify their ratings. In my opinion, that is what this case will hinge on.

2/5/2013 10:27:28 AM

^yep, if you look at the language the Aussie judge used she seemed to think they were purposefully negligent and deceptive in representing and rating the product.


As others have said I don't think that is easy to prove, but the DOJ knows this. Surely they have some kind of evidence in their back pockets, right? . . . . .right guyz?

[Edited on February 5, 2013 at 10:39 AM. Reason : grammarz]

2/5/2013 10:39:00 AM

Quote :

"A private bank rated by a private agency that is a member of gov't-created and perpetuated triopoly."

FTFY. That's NOT unfettered capitalism.

2/6/2013 8:26:29 PM

What role does the government play in the rating of MBSs other than owning the loans closest to actually being worthy of AAA?

2/6/2013 9:32:16 PM

is it your contention that there is zero regulation of the ratings agencies in the US?

2/6/2013 10:42:49 PM

As I understand it, some ratings agencies (Maybe S&P, maybe not) actually sold access to their ratings algorithms to major traders and banks. That way, they could package financial instruments so as to maximize the offloading of toxic assets while just barely eking out an AAA rating.

2/7/2013 11:55:23 AM

^ One would hope that even if they did this, their ratings algorithm is robust enough that something teetering on the edge of AAA doesn't suddenly become a D if some of the assets fail.

2/7/2013 2:22:31 PM

Knowningly assigning ratings that aren't deserved - is this not fraud, plain and simple?

2/7/2013 2:54:37 PM

So it looks like the DOJ's case has very little chance of success according to legal analysts. The case is looking more and more like an attempt to just get a settlement of some kind with no real chance of winning in court.

Quote :

"It will be hard for prosecutors to argue that S&P alone was privy to a unique window into the shaky state of the U.S. housing market in early 2007, which the Wall Street banks churning out the securities, or even the U.S. Federal Reserve, didn't have. Other lawyers point out that S&P's ratings on residential mortgage bonds in early 2007 weren't much different from those of Moody's Investors Service, a rival rating agency the government hasn't sued. "It is a crappy case. It's a hammer to get a settlement and all of the settlements we have seen so far have been a mere slap on the wrist," said Janet Tavakoli, a derivatives and structured finance consultant who has written a number of books about complex securities. She said the case "re-enforces the narrative that bank officers have put forward, which is they couldn't have known about how bad the subprime crisis would be." A spokesman for the Department of Justice did not respond to requests for comment to discuss the lawsuit, which does not name any individuals as defendants. U.S. Attorney General Eric Holder said in statement announcing the lawsuit's filing, "this alleged conduct is egregious - and it goes to the very heart of the recent financial crisis." Legal experts said the U.S. government's case appears to suffer specifically from a lack of available witnesses to make a compelling argument that S&P intentionally defrauded banks and two federal credit unions by slapping investment grade ratings on dozens of mortgage bond deals that quickly went bust."

http://www.cnbc.com/id/100541267

So, in summary no witnesses, no significant difference in rating from other agencies, and their "victims" were large, sophisticated investors who had been criticized by government overseers for not doing their own due diligence on investment risk.

Again, I'm not saying S&P was blameless. They were clearly wrong about their ratings, but saying it was intentionally fraudulent is another thing entirely. Proving that is going to be even more difficult still.

3/11/2013 5:10:09 AM