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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.

  • U.S. AND STATE PROSECUTORS PLAN TO FILE CIVIL CHARGES ALLEGING WRONGDOING BY S&P'S RATINGS SERVICES IN ITS RATING OF MORTGAGE BONDS BEFORE THE FINANCIAL 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 | 3213843 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 | 3213856 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 | 3213877 ParkAveFlasher
ParkAveFlasher's picture

In Soviet America, credit rates you.

Mon, 02/04/2013 - 14:54 | 3213906 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 | 3213921 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 | 3213950 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 | 3213971 Manthong
Manthong's picture

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

-Voltaire

Mon, 02/04/2013 - 15:47 | 3214102 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 | 3214450 Frozen IcQb
Frozen IcQb's picture

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

Mon, 02/04/2013 - 15:27 | 3214043 unrulian
unrulian's picture

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

Mon, 02/04/2013 - 16:06 | 3214156 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:

http://confoundedinterest.wordpress.com/2013/01/08/government-mortgage-e...

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 | 3214895 Buck Johnson
Buck Johnson's picture

Payback pure and simple.  Our country is so corrupt.

Mon, 02/04/2013 - 14:38 | 3213847 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 | 3213884 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 | 3213969 disabledvet
disabledvet's picture

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

Mon, 02/04/2013 - 14:53 | 3213903 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 | 3213848 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 | 3213887 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 | 3213888 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 | 3214029 unrulian
unrulian's picture

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

Mon, 02/04/2013 - 14:38 | 3213853 Turin Turambar
Turin Turambar's picture

Criminals suing the coerced.  Nice.

Mon, 02/04/2013 - 15:50 | 3214106 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 | 3213858 dbTX
dbTX's picture

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

Mon, 02/04/2013 - 15:53 | 3214113 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 | 3214346 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 | 3214605 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 | 3215138 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 | 3215139 Turin Turambar
Turin Turambar's picture

.

Mon, 02/04/2013 - 14:39 | 3213859 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 | 3213862 WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

This must be Bullish.

Mon, 02/04/2013 - 14:45 | 3213876 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 | 3213883 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 | 3213886 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 | 3213890 GolfHatesMe
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Neil Barofsky and Egan Jones are smiling

Mon, 02/04/2013 - 14:51 | 3213897 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 | 3213905 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 | 3213908 LetsGetPhysical
LetsGetPhysical's picture

wrist slap imminent. 

Mon, 02/04/2013 - 14:55 | 3213910 williambanzai7
williambanzai7's picture

THE S&P INQUISITION

Mon, 02/04/2013 - 16:08 | 3214158 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 | 3213931 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 | 3213933 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 | 3214128 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 | 3213937 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 | 3213955 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 | 3213966 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 | 3213983 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 | 3214007 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 - 16:00 | 3214131 Schlomo Bergstein
Schlomo Bergstein's picture

No good deed goes unpunished it seems.

Mon, 02/04/2013 - 16:08 | 3214170 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 | 3214192 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 | 3214229 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"

 

                                Repete

Mon, 02/04/2013 - 16:24 | 3214231 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 | 3214394 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 | 3214426 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 | 3214427 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 | 3214488 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 | 3214464 Walt D.
Walt D.'s picture

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

Mon, 02/04/2013 - 18:37 | 3214592 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 | 3214852 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 | 3215455 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 | 3215515 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 | 3215679 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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