I know this topic is a few days old, but it is still fresh in my mind. As everyone has seen, the US is now suing S&P
The U.S. government is expected to file civil charges against Standard & Poor's Ratings Services, alleging that it improperly gave high ratings to mortgage debt that later plunged in value and helped fuel the 2008 financial crisis.
The charges would mark the first enforcement action the government has taken against a major rating agency involving the worst financial crisis since the Great Depression.
S&P said Monday that the Justice Department had informed the rating agency that it intends to file a civil lawsuit focusing on S&P's ratings of mortgage debt in 2007.
Fine. You've sued all the banks and about everyone else, I guess it is time to move on to the ratings agencies as they sure as hell dropped the ball on this. I'm still waiting on them to sue pension fund managers, hedge fund managers etc as well but hey, why not go for the obvious scapegoats. Then I read this.
A federal lawsuit would "disregard" the fact that S&P reviewed the same data on risky mortgages as U.S. government officials, who said publicly in 2007 that the problems in the subprime mortgage market appeared to be limited, the company said in a statement.
Are. You. Kidding. Me. Really? This is what it has come to? We aren't even glossing over the fact we are trying to scapegoat them, we are actually coming out and saying it in plain sight. Yeah, the geniuses running the country, the Fed and the Treasury all missed it with your same data but yet we are still going to civilly sue you over it. That's just priceless.
Look, I'm not trying to say that the ratings agencies weren't derelict or didn't do a shitty job but I still maintain that it is the responsibility of the clowns who buy the stuff, the end consumers of it, to do their due diligence. To come back and sue over this is absolutely ridiculous. Thrown in the fact that the government is only suing the one ratings agency that had the stones to downgrade them (egan jones not-withstanding). This is just obnoxious. Anyway, that's enough of that.
Also, an interesting article for those interested in the tax implications of getting divorced courtesy of the journal.
What do you guys think? Are you just jaded of the entire thing, or is this a rightful lawsuit towards those who actually failed us during the crisis?
Lots of people missed and there were conflict of interests but at end of day it is the buyer who is responsible. It is why there is buy and sell side. Like if I bought Apple based on some analysts recommendation for it to hit $1,000 can i sue them for now having me 30% in the red? It is the exact same thing. That said S&P has had a lto of recent screwups as evidence by them pulling CMBS ratings etc. Targeted for wrong reasons by public.
The dangerous part of this is that S&P's freedom of speech is not going to be unchallenged anymore, and they will likely be held to more stingent account, meaning they are going to become much more cautious with their appraisals. Maybe a good thing, but it's not going to help the economy. Something like this should have been done 3 or 4 years ago, not now, it's just going to keep adding drag to what slow recover there is, and this is a blunder on the Obama adminstration's part.
In reality, the gov't is going to have a VERY hard time proving that S&P did anything fraudulent because I don't think most staff actually were committing fraud: they just let their standards slip as they lost sight of the big picture. More likely, the gov't will demand a different compensation arrangement for the ratings agencies when they realize that the problem wasn't one particular firm, it was systemic. I still give the odds at 80% that the gov't will extort some money out of S&P, but I find it unlikely that they're going to find the smoking gun they're looking for.
They will search emails and find something likely, but not enough maybe....
I say it is the buyer who is responsible because it is their mandates that change things. If they want change they can easily get it, but if they dont they do nothing. The game wont change unless the buyer changes it. The "broken" model wont change unless buyers pay for ratings to get rid of conflict of interest. It wont change until they open their own mandates for all rating agencies allowing more competition in the space. The sad thing is that it won't ever change unless industry becomes nationalized after another blow up or somehow deals get rotated between agencies with nobody getting more or less (essentially destroying capitalism in the area).
The way I see things, responsibility for the financial crisis is everyone's. The banks overleveraging on low quality loans, consumers taking on too much debt, the government juicing the system with low interest rates and a crusade to turn everyone into a homeowner, builders overbuilding, speculators....literally everyone. The last government administration will be judged rather harshly for using low interest rates to juice the housing market to keep the economy roaring after 911 and the dot com bust. The best we're going to get as far as punishment for the government is a different administration: this one. You can judge if that's sufficient or not for yourself.
The credit ratings agencies are the ones that were supposed to know better though. I lay the harshest criticism on them. I'm glad they're finally answering for their actions, it seems they took their duties for granted, as well as their privelages.
BTW: told y'all last year that the gov't would crucify S&P for fucking with them.
rating agencies only exist because lazy institutional investors are not willing to do the credit analysis. every bank has their own credit department and rating agencies are ignored. if institutional investors would spend a few more minutes to perform due diligence on what they're buying this would eliminate the need for rating agencies.
That is like having an firm IPOing and determining their own market cap and nobody gets to do any dilligence on what they say their market cap should be
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