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Civil Charges To Be Filed Against S&P For Its Exuberant Pre-Crisis Mortgage Ratings

Tyler Durden's picture


Egan-Jones may have been barred from rating sovereigns for 18 months due to missing a comma here or there in its NRSRO application (when everyone knows this was merely retribution for downgrading the US ahead of all the other rating agencies), but now the time has come for that other rating agency which dared to follow in EJ's footsteps and downgrade the US of AmericaAA+ in August 2011 to be punished: Standard & Poors. Moments ago we learned that federal and state prosecutors will five civil charges against S&P for its mortgage bond ratings during the housing crisis.


Certainly if S&P is being targeted so will be the Octogenarian of Omaha's pet rating company, Moody's as well, not to mention French Fitch. Or maybe not: after all these were the two raters who sternly refused to downgrade the US when the country boldly penetrated the 100% debt/GDP target barrier, and which at last check has some 105% in debt/GDP with no actual plan of trimming spending. As in ever.

And in these here united banana states, it is only reasonable to expect that such crony, corrupt behavior is not only not punished but solidly rewarded.

From the WSJ:

The Justice Department and state prosecutors intend to file civil charges alleging wrongdoing by Standard & Poor's Ratings Services in its rating of mortgage bonds before the financial crisis erupted in 2008, according to people familiar with the matter.


The allegations likely would be made in lawsuits by federal and state officials that are expected to be filed as soon as this week, the people said. The alleged wrongdoing by S&P, a unit of McGraw-Hill Cos., MHP -1.68% centers on allegations related to the model used by S&P to rate mortgage bonds.


The likely move by U.S. officials would be the first federal enforcement action against a credit-rating firm for alleged illegal behavior related to the crisis. Several state attorneys general are expected to join the case, making it one of the highest-profile and widest-ranging enforcement crisis-era crackdowns.


The expected civil charges against S&P follow the breakdown of long-running settlement talks between the Justice Department and S&P, the people said.


Many details of the looming enforcement action couldn't be immediately determined, such as why prosecutors are zeroing in on S&P rather than rivals Moody's Corp. MCO -0.92% and Fitch Ratings, a unit of Fimalac SA FIM.FR +0.13% and Hearst Corp.


All three credit-rating firms have faced intense criticism from lawmakers for giving allegedly overly rosy ratings to thousands of subprime-mortgage bonds before the housing market collapsed.


The Financial Crisis Inquiry Commission concluded two years ago that the top credit-rating agencies were "key enablers of the financial meltdown."


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Mon, 02/04/2013 - 14:35 | Link to Comment TheSilverJournal
TheSilverJournal's picture

Does this mean we can sue Bernanke for not seeing the housing bubble. Or sue Obama for touting recovery as 2012 Q4 comes out with a negative GDP print.

Mon, 02/04/2013 - 14:38 | Link to Comment wisefool
wisefool's picture

Nobody. And I mean nobody will know what could have happened if Timmah paid his taxes on time. The bubble might have been sustainable. Lets train some lawyers so they can go to the senate to forget.

Mon, 02/04/2013 - 14:43 | Link to Comment ParkAveFlasher
ParkAveFlasher's picture

In Soviet America, credit rates you.

Mon, 02/04/2013 - 14:54 | Link to Comment wisefool
wisefool's picture

Full Faith and credit. Our new nobel prize winner for peace/econ will let us highlight the number of zeros need to maintain both employment and price stability.

Mon, 02/04/2013 - 14:58 | Link to Comment redpill
redpill's picture

Yeah, telling the truth as a rating agency.  Ask Egan Jones how that worked out.

Mon, 02/04/2013 - 15:05 | Link to Comment francis_sawyer
francis_sawyer's picture

 "Full faith & credit"... That's just another euphemism for 'keep the clownbux express rolling'...

Mon, 02/04/2013 - 15:10 | Link to Comment Manthong
Manthong's picture

“It is dangerous to be right when the government is wrong.”


Mon, 02/04/2013 - 15:47 | Link to Comment Son of Loki
Son of Loki's picture

'Earth provides enough to satisfy every man's need, but not every man's greed.'


--Mahatma Gandhi

Mon, 02/04/2013 - 17:43 | Link to Comment Frozen IcQb
Frozen IcQb's picture

Just downgrade the US two more notches to show who's boss.

Mon, 02/04/2013 - 15:27 | Link to Comment unrulian
unrulian's picture

Hot Damn...who do i sue for my awful credit rating?

Mon, 02/04/2013 - 16:06 | Link to Comment mightycluck
mightycluck's picture

Why don't they sue Fannie Mae and Freddie Mac, The FHA, Clinton and Bush?

I look for Fannie and Freddie risky loan purchases and found this:

Over 30% of their purchases were risky loans (many to minority households).

Look at the low FICO, high LTV bucket from 2007. 51.6% 90 day delinquencies.


Mon, 02/04/2013 - 20:09 | Link to Comment Buck Johnson
Buck Johnson's picture

Payback pure and simple.  Our country is so corrupt.

Mon, 02/04/2013 - 14:38 | Link to Comment ebworthen
ebworthen's picture

And of course the criminal banks and bankers that were fixing LIBOR rates go free.

It's like punishing the teacher who graded the test that the students cheated on and giving the cheating students a gold star and a lollipop.

Mon, 02/04/2013 - 14:47 | Link to Comment Nothing To See Here
Nothing To See Here's picture

They don't go free. I heard they have to pay lunch to Geitner and his buddies from time to time.

Mon, 02/04/2013 - 15:09 | Link to Comment disabledvet
disabledvet's picture

"only at the Club" of course. "tis a Gentlemen's Game."

Mon, 02/04/2013 - 14:53 | Link to Comment knowless
knowless's picture

you just summed up the current education system in america, minus the lollipop maker getting a cut of the teachers wages earned in the prison camp.

Mon, 02/04/2013 - 14:37 | Link to Comment Dr. Engali
Dr. Engali's picture

The hypocrisy is blatant and sickening, but to Joe six pack who thinks S&P stands for salt and pepper it means nothing.

Mon, 02/04/2013 - 14:50 | Link to Comment Hippocratic Oaf
Hippocratic Oaf's picture

In my business they're also dragging down some of the highest rated municipal bond insurers. A triple-A insurer does not exist. Some of the 'reason' being kicked around is "why should an insurer have a higher rating than the USofA?"


It's all shit.

Mon, 02/04/2013 - 14:48 | Link to Comment NoDebt
NoDebt's picture

I thought S&P was a grocery store chain.  I had no idea they also rated debt issuance.  No, wait, I'm thinking of A&P.  Sorry.  Um...... does S&P own A&P?  The one thing I'm sure of is that neither one has anything to do with the S&P 500 index they keep showing on CNBC.  Cause that's like equities, not debt.  Right?  Oh, jeez, now I'm confused.  Somebody help me out.

Mon, 02/04/2013 - 15:23 | Link to Comment unrulian
unrulian's picture

by six pack you must mean shitty watered downed American there are no abs left in America

Mon, 02/04/2013 - 14:38 | Link to Comment Turin Turambar
Turin Turambar's picture

Criminals suing the coerced.  Nice.

Mon, 02/04/2013 - 15:50 | Link to Comment A is A
A is A's picture

Exactly! If anyone thinks this ends up going anywhere other than a small financial wrist slap AT MOST, they are severely fooling themselves. Where are the CRIMINAL charges??? But hey, maybe that is only blaming an extremity of the beast. The head is the government that enabled this. After all, who can really blame someone who takes advantage of having a government protect triopoly on the the bond rating market anyway? When I see Chris Dodd and Barney's Frank in an orange jumpsuit I will believe this is a serious lawsuit!

Mon, 02/04/2013 - 14:39 | Link to Comment dbTX
dbTX's picture

Yeah, and Corzine walks around a free man, talk about selective justice.

Mon, 02/04/2013 - 15:53 | Link to Comment marathonman
marathonman's picture

The surface reason of going after S&P for downgrading US debt may be valid but I suspect S&P gave too much money to Republicans.  That's only a guess though.

Mon, 02/04/2013 - 17:01 | Link to Comment Turin Turambar
Turin Turambar's picture

I disagree.  This is a shot across the bow that all ratings agencies will see.  The government doesn't want any more downgrades.  Gotta keep the ponzi propped up as long as possible.

Mon, 02/04/2013 - 18:37 | Link to Comment cristo
cristo's picture

I would suggest otherwise .The way i see it is that  a US downgrade is imminent and that these charges will give Obama political cover to blame the downgrade as a retaliation from the rating agencies .

Mon, 02/04/2013 - 21:35 | Link to Comment Turin Turambar
Turin Turambar's picture

Interesting point.  Still, if the government has you in its sights, you really don't want to piss it off (downgrade).  Time will tell.

Mon, 02/04/2013 - 21:35 | Link to Comment Turin Turambar
Turin Turambar's picture


Mon, 02/04/2013 - 14:39 | Link to Comment apberusdisvet
apberusdisvet's picture

More prosecutions of anyone but the banksters; or the politicians; or even the treasonous Marxists/Fascists in the WH.

Mon, 02/04/2013 - 14:39 | Link to Comment WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

This must be Bullish.

Mon, 02/04/2013 - 14:45 | Link to Comment williambanzai7
williambanzai7's picture

Big fucking deal!

Civil charges again. The fiasco just keeps getting bigger. Just like a securitized sinkhole.

Mon, 02/04/2013 - 14:45 | Link to Comment alien-IQ
alien-IQ's picture

No doubt they will get hit with a crushing $500 fine for their digressions. Could be as high as $1000...who knows.

There goes the Monday Starbucks for the office budget for at least 2 weeks.

Mon, 02/04/2013 - 14:48 | Link to Comment resurger
resurger's picture

"Related to the model abused by S&P to fuck mortgage bonds."

I love those models...

Mon, 02/04/2013 - 14:49 | Link to Comment GolfHatesMe
GolfHatesMe's picture

Neil Barofsky and Egan Jones are smiling

Mon, 02/04/2013 - 14:51 | Link to Comment firstdivision
firstdivision's picture

So how about some civil charges against the IB's that sold the crapy loans they made to create these toxic assets?

Mon, 02/04/2013 - 14:54 | Link to Comment disabledvet
disabledvet's picture

let me guess "Chicago is about to be bankrupted." Boy...I wonder who would want that....

Mon, 02/04/2013 - 14:54 | Link to Comment LetsGetPhysical
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wrist slap imminent. 

Mon, 02/04/2013 - 14:55 | Link to Comment williambanzai7
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Mon, 02/04/2013 - 16:08 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Bawahahaha, that would be even better with Eric Holder's face photoshopped over Michael Palin's.

Mon, 02/04/2013 - 15:01 | Link to Comment Lewshine
Lewshine's picture

Obama, like Mao, like Stalin, like Castro, like Hitler, like Pol Pot, like Chavez....Don't like WHISTLEBLOWERS - Even when its their JOB!!!

Mon, 02/04/2013 - 15:01 | Link to Comment akarc
akarc's picture

move by U.S. officials would be the first federal enforcement action against a credit-rating firm for alleged illegal behavior 

So you file a civil suit?  How civil!

firms have faced intense criticism from lawmakers for giving allegedly overly rosy ratings to thousands of subprime-mortgage bonds before the housing market collapsed.

They should have been in the business of issuing the bonds thus insuring a bail out. Silly credit rating firms.

Which is why I insure I have no verifiable income. Keeps my credit rating higher than my wifes who works for the state.

Mon, 02/04/2013 - 15:58 | Link to Comment imapopulistnow
imapopulistnow's picture

Civil is against the company.

Criminal would be against individuals - individuals who likely know too much and would implicate others to save themselves.

Mon, 02/04/2013 - 15:02 | Link to Comment e-recep
e-recep's picture

the courts belong to banksters, dont hold your breath. remember how DSK was tossed around in nyc?

Mon, 02/04/2013 - 15:06 | Link to Comment loveyajimbo
loveyajimbo's picture

Holder, and his catamite Obunga, are such assholes... I wonder if this will effect the massive bernanke buying of the same toxic mortgage bonds as we speak.... with OUR money...???  And no worries, Dimon's incredible short of silver is a legit hedge... just ask him.

Mon, 02/04/2013 - 15:09 | Link to Comment oleander garch
oleander garch's picture

Question:  Why no target on Moody's?

Answer: Well, Warren Buffet did not dine on S&P dividends spawned by the fraud.  He only supped from the Moody's fraud.  So, there you go.

Mon, 02/04/2013 - 15:13 | Link to Comment Catullus
Catullus's picture

They just getting their financial services surtax from the Justice Dept.

Enabler of the financial crisis, a rating agency, really? I suppose everyone is a child now.

Mon, 02/04/2013 - 15:19 | Link to Comment ziggy59
ziggy59's picture

Last one out of this banana republic, stick a fork in it...and pull the friggin plug. We are DONE!

Mon, 02/04/2013 - 15:26 | Link to Comment falak pema
Mon, 02/04/2013 - 16:00 | Link to Comment Schlomo Bergstein
Schlomo Bergstein's picture

No good deed goes unpunished it seems.

Mon, 02/04/2013 - 16:08 | Link to Comment Waterfallsparkles
Waterfallsparkles's picture

5 YEARS LATER?  They rated everything AAA and then as they blew up they kept Downgrading their Ratings causing even greater damage all of those AAA investments.

The problem is that none of the Money ever gets to the People that lost Money due to their practices.

Mon, 02/04/2013 - 16:44 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

What chutzpah. I bet this is their way or answering the anonymous threat to leak information. Make it look like your are being tough while kneecapping a bell on the alarm system at the same time. Also looks like it is a public answer to The Untouchables piece. I hope Moyer isn't fooled and calls them out on it and for their prosecution of Egan-Jones.

Mon, 02/04/2013 - 16:23 | Link to Comment repete
repete's picture

I like that but how about this

"Bernie Madoff's doin time cause he stole from the rich and not the 99"



Mon, 02/04/2013 - 16:24 | Link to Comment venturen
venturen's picture

This is like arresting the reporter at the local newspaper instead of the mugger. Hey if you don't like the rating...don't use it. The investment banks with staff multitude bigger, gamed the system and WON!

Mon, 02/04/2013 - 17:20 | Link to Comment Joebloinvestor
Joebloinvestor's picture

What we need to see is if the ratings agencies "fold" and get with the program.


Whatever happened to the EU that was gonna form its' own rating agency?

Mon, 02/04/2013 - 17:33 | Link to Comment Steve in Greensboro
Steve in Greensboro's picture

The U.S. Government is going to sue the rating agencies?  This is like the parricide suing the police for failing to stop him from murdering his parents.

Recommend the rating agencies counter-sue the U.S. government for the actions of Fannie, Freddie, the Federal Reserve (just as Federal as the U.S. Federal Government), et al.

Mon, 02/04/2013 - 17:34 | Link to Comment dadichris
dadichris's picture

all the rating agancies are obviously fraudulent giving an "A" to any government, particularly the US.  After all, anyone who has to borrow more money just to make the minimum payment on their debt is completely past the point of no return. Why aren't they presecuting them for NOT downgrading the US?!?!

Mon, 02/04/2013 - 17:57 | Link to Comment Walt D.
Walt D.'s picture

You are applying common sense to an area where common sense is not supposed to be applied.

Alan Greenspan is correct when he says that the US Treasury will not default in that the Federal Reserve will print money to pay the interest or buy iback the notes and bonds. However, don't expect the dollar you lend today to have anywhere near the purchasing power when you receive it back in 10,15 or 30 years. Neither S&P or Moody's consider inflation to be a de facto default, even though it is.

Mon, 02/04/2013 - 17:47 | Link to Comment Walt D.
Walt D.'s picture

Here comes the fire truck after the house has burned down.

Mon, 02/04/2013 - 18:37 | Link to Comment cristo
cristo's picture

I guess this signals that a US downgrade is imminent .Just some political cover for Obama to blame the downgrade as a retaliation from the rating agencies for these civil charges

Mon, 02/04/2013 - 19:55 | Link to Comment MFLTucson
MFLTucson's picture

The fuckin bullies are back at it knowing downgrade 2 should have already happened!  Disgusting thug!

Tue, 02/05/2013 - 00:44 | Link to Comment Number 156
Number 156's picture

Cmon FED. You really dont want to do that.  Your witnesses will be cross-examined, and the evidence that you would not want to see the light of day will expose you.

Tue, 02/05/2013 - 00:43 | Link to Comment Pike Bishop
Pike Bishop's picture

Civil charges are hilarious. Civil fines get put against revenues. They are a 'cost" of doing business, So shareholders get fucked somewhat. But it's a reduction on taxable proceeds of the business. Whatever the civil fines are, the company gets a "refund' on the fine at the company's effective tax rate. So, tax revenues get a little fucked, too.

As long as the price of Vaseline doesn't go up, I think we'll all be fine.

Tue, 02/05/2013 - 02:40 | Link to Comment dunce
dunce's picture

I am not sure what crime they might be charged with or how they could be punished. Suppose the govt. fined them the total value of the company and put them out of business, the stock holders would lose every thing, but they did not do anything but invest in the company. How would anything be better after the company was out of business. The real assets walk out the door every day at quitting time. The govt, could own an empty building. Supposedly they provided a needed service. Who will then supply that need? What investor would trust the credit rating of a govt. bureaucrat. No one trusts these companies anymore any way after rating sub-prime mortgages AAA. Will this prosecution do anything to fix our broken market?

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