DoJ sues S&P

As anticipated, the Department of Justice is now suing S&P over its alleged contribution to the mortgage crisis.

The details surrounding the mortgage debacle has been well chronicled in previous posts. While it’s obvious that S&P’s risk assessment models were flawed, there is no evidence to suggest that the rating agency deliberately misled anyone. The real issue is is political, and the point here is to establish corporate America–not Washington–as the villain, and send a message to anyone who might challenge governmental authority. Unfortunately, S&P will probably negotiate a settlement rather than fight, which will further underscore the threat.

If the DoJ is going to due S&P, there are some other culprits Eric Holder could consider as well…

1. Congress–for passing the Community Reinvestment Act.

2. Freddie & Fannie–for exacerbating the subprime problem.

3. Barney Frank and Chris Dodd–for misrepresenting the financial integrity of Freddie & Fannie.

4. Obama–for expanding the national debt at an unprecedented pace.

5. The Fed–for instigating the entire problem from the outset by, among other things, pushing people into houses and bigger houses by keeping mortgage rates artificially low.

4 thoughts on “DoJ sues S&P

  1. I read in yesterday’s WSJ that in March 2007, S&P analyst sent his colleagues song lyrics about the deteriorating housing market with the tune of the popular song from the 80’ “Burning down the house”, by the Talking Heads( nice song, BDW). If S&P knew that this is a bubble and continued to rate the mortgage backed securities as triple-A, then “something is rotten in the state of Denmark”.

  2. There is diversity of opinion in every organization. Everyone knows that S&P didn’t evaluate risk well, but that’s not the question. The justice department’s allegation is fraud, not errors of judgment. Just because someone in a company had an opinion we can’t conclude that the organization knew anything. If S&P knew there was a big problem, then why wouldn’t others know as well. Why didn’t Barney Frank know? The government was in the middle of the deal. Take a look at what Frank said. Why isn’t there an investigation there?

  3. If the S&P was at fault and we know better now, then why are Freddie Mac and Fannie Mae still playing the same game? The problem is with lending too much money to the wrong people without enough down payment. It’s all happening again to pump up the housing market. Who’s fault will it be when it crashes again?

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