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S&P Settles DOJ Lawsuit For $1.5 Billion; Agrees Not To Accuse Government Of Retaliation For US Downgrade
As had been widely rumored in the past two weeks, and as the WSJ reported overnight, moments ago McGraw Hill, parent of disgraced rating agency S&P, entered into a $1.5 billion settlement to fully resolve the DOJ lawsuit regarding S&P ratings on RMBS and CDOs. As the WSJ reported overnight, In the "span of about 30 hours, the Justice Department lowered its asking price and backed off demands that S&P admit to violating laws when it issued rosy grades on risky mortgage deals, the people said."
The details per the WSJ which broke the original story:
Under the settlement, the Justice Department will receive $687.5 million. Some 19 states and the District of Columbia will share a similar amount, the people said.
Separately, S&P completed a $125 million settlement late Monday with the California Public Employees’ Retirement System, or Calpers, the country’s biggest public pension fund by assets, over another crisis-era lawsuit. That brings the total payout to $1.5 billion.
Meanwhile, the Justice Department is in the early stages of a probe into ratings by Moody’s Investors Service of mortgage securities before the crisis, people familiar with the matter have said. A Moody’s spokesman declined to comment.
Of course, everyone knows that the original lawsuit, and today's settlement, were over something far simpler: S&P daring to downgrade the US back in 2011. After all none other than Tim Geithner is on the record as saying that "S&P’s [downgrade] would be looked at very carefully," Geithner told McGraw according to the filing. "Such behavior would not occur, he said, without a response from the government."
It also explains why Buffett's favorite Moody's was not one of the named parties in a lawsuit that allegedly involved rating agencies transgressions: after all Moody's and Fitch rated just as many RMBS and CDOs.
But more on that in a second. First, the WSJ walks us thorugh the timeline of the suit:
The relationship between the two parties began to unravel after August 2011 when S&P was the only one of the three big rating firms to downgrade U.S. debt. Days after the move, then-Treasury Secretary Timothy Geithner , after a meeting with President Barack Obama , placed an angry phone call to Harold McGraw III, then chief executive of McGraw Hill, in which he said the firm’s conduct would be “looked at very carefully,” according to an affidavit submitted by the company. Mr. Geithner has denied, through a spokeswoman, that he threatened or took any action to prompt retaliatory action against S&P.
The Justice Department has also denied the lawsuit was retaliation for the downgrade. Privately, officials described the argument as an offensive attack on the department’s independence.
Over the next 18 months, the two sides tried and failed to reach a settlement as S&P balked at the government’s demand for more than $1 billion and admissions of wrongdoing. The Justice Department brought its suit against S&P in February 2013.
S&P lawyers on the day the suit was announced called the government’s case “simply indefensible.” Tony West, then associate attorney general at the Justice Department, called S&P’s bond grades a “misguided venture.”
Soon, however, it would all become just a question of how much S&P ends up paying, with both parties trying to find an appropriate bid and ask, for the temerity to suggest that the US is no longer AAA:
Settlement talks were quiet until Feb. 18, 2014, when George S. Cardona, the main Justice Department lawyer handling the S&P case in California, called S&P’s lawyers with an offer: $3.2 billion.
That figure startled S&P, which didn’t submit a counteroffer. Negotiations stalled again.
Informal conversations between S&P and government lawyers started again over the summer. Talks got a jolt later in the summer with the entry of a pair of relatively new faces— Stuart Delery, the Justice Department’s No. 3 official and Mr. West’s successor, and Lucy Fato, the new general counsel of McGraw Hill. Ms. Fato, a ratings-world outsider, started on the job in early August. By 9:15 a.m. on her first day, she had phoned several government lawyers expressing a desire to reopen dialogue about a settlement.
More than three months later, following a meeting with all parties in Hartford, Conn., Ms. Fato laid out S&P’s first counteroffer: a $750 million settlement that would resolve the suits with the Justice Department, the states and with Calpers.
The government countered in mid-December with a $1.9 billion offer, minus a Calpers deal and plus the admission of wrongdoing by S&P.
Those two offers represented the starting points for the final settlement talks at the Justice Department’s Washington offices on Jan. 14 and 15, where more than 30 people crowded into a fifth-floor conference room next to Mr. Delery’s office.
With winter coats draped over chairs and suitcases shoved off to the side, Ms. Fato disclosed the company’s first offer: $900 million for a settlement with the states and Justice Department, excluding Calpers and with no admissions of wrongdoing. Government lawyers took that as the first major sign S&P was serious about cutting a deal. “We know that’s a real step in the right direction,” said Mr. Delery at the meeting.
The government countered with a $1.8 billion offer.
S&P didn’t want to budge past $900 million, arguing it matched the revenue over several years that the company generated during the precrisis boom period. But Mr. Delery said the government was suing for fraud, and S&P also needed to pay a penalty.
On Wednesday evening, Ms. Fato and Mr. Delery stepped out of the conference room for a series of one-on-one chats. When Ms. Fato walked back into the conference room, she announced S&P was now willing to pay above $1 billion, which government lawyers had viewed as a key barrier.
The day ended with S&P at $1.2 billion and the government at $1.5 billion.
Until finally... "Negotiations kicked off at 9:30 a.m., and as the final details toward $1.375 billion got sorted out, there were long waits in between counteroffers. S&P’s legal team spent much of that time lounging on a sofa in the fourth-floor conference room and toying around with a child’s wooden puzzle game."
And that is how you negotiate the price of justice in the US.
As for the underlying reason behind the lawsuit, it couldn't be clearer:
It was important to the Justice Department for the political retaliation argument to be dropped. Mr. Delery argued it unfairly besmirched the integrity of the career attorneys who worked on the S&P case and told the room it was “of grave importance to the people of the United States of America.”
The two sides hashed out wording that would be included in S&P’s statement of facts as part of the settlement. S&P, which was drafting motions to bolster its defense as recently as last week, eventually signed off on language that acknowledged its current evidence wasn’t sufficient to prove political retaliation. In return, S&P avoided having to admit it violated any laws.
Bottom line: "S&P agreed to ... withdraw its assertion that the Justice Department lawsuit was political retaliation for the ratings firm’s 2011 downgrade."
And now you know what will happen the next time anyone dares to downgrade the US, pardon, to set incorrect ratings on RMBS securities.
Because when it comes to the First amendment all are equal, but some are more equal. As for this completely "apolitical" settlement, the only question is why the DOJ did not demand that S&P also upgrade the US to AAA+++, in light of how much of an "apolitically motivated" farce sovereign ratings have become.
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Who says we don't give in to terrorists and pay ransom for freedom?
Ahhhh, the 'ol Political Retaliation trump card. That card has some value.
Kinda like having pictures of your boss with stripper sparkles on his face - career saver trump card
NoVa
Yep, clue numero uno for a society in decline. Gubbermint extortion.
We are really going to be screwed someday.
"We have not yet begun to fight screw you." - John Paul Jones Your friendly federal government bureaucrat.
Good thing they didn't have a hangin judge, this would have gone on forever.
Damn!..... Ya just can't make this kind of comedy up. Take this shit show on the road and you'll sell out.....this country needs this kind of laugh
... it didn't stop there ... "S&P faces new $125mn fine - report" >>> http://rt.com/business/228847-standard-poors-million-fine/ ... once they get bullied to pay for "Shitty & Poor" credibility, they'd be a cash cow for .gov ...
These .gov folk are just doing their jobs. No reason to hate them. Right?
Both sides indemnify themselves from further legal action, and the only thing that happens is some fake 1 and 0's are deleted.
Now that's some good justice!
ALL GLORY TO THE HYPNO-JUST-US
Just following the Jackson/Sharpton revenue model. Been around for years.
With winter coats draped over chairs and suitcases shoved off to the side, Ms. Fato disclosed the company’s first offer: $900 million for a settlement with the states and Justice Department...
There are much better things to do with suitcases...
Buy suitcases for next to nothing at your local Salvation Army. (Yes. Help out the poor. The reward will be fantastic as you shall read)
Buy some used WIRE and a brick (This does not take much...)
Place the brick inside of the suitcase and leave wires sticking out.
Spinkle a little Miracle Gro inside so that it "Sniff Tests" positive for Nitrates.
Leave this suitcase unattended in a very public place...
Have your accomplice call the cops to report ths suspicious package and then watch them roll out the Bomb Squad.
To make this even more fun walk into the "Crime Scene" to retrieve YOUR property. You can tell them that there is a brick and some wire in it.
You are not lying and there is nothing illegal about owning a suitcase with a brick and some wire. You are not littering. You left it for a minute. It is not a Bomb. It is recyclables.
If they blow it up then sue the city for the loss of your property.
That will cost them scarce budgetary funds.
Call them out for everything. Keep those fuckers so busy that they cannot take a breath.
Besides...Isn't it your duty to report "suspicious activity"? And, besides, nobody is harmed.
If they want to do this type of Political Retaliation against whistleblowers then we can respond in kind.
We can do this. Project Mayhem.
Starve the Beast.
To the person who downarrowed. Thank you for confirming that you know that it will work.
Everybody also needs to talk like a terrorist ALL OF THE TIME.
Starve the Beast.
Since this video was censored on YouTube here is Trevor Brown on Funny Or Die...
http://www.huffingtonpost.com/2013/06/12/nsa-wiretapping-psa_n_3429412.html
Anyone else want to thank Big Brother for this doubleplusgood settlement?
Talks got a jolt later in the summer with the entry of a pair of relatively new faces— Stuart Delery, the Justice Department’s No. 3 official and Mr. West’s successor, and Lucy Fato, the new general counsel of McGraw Hill. Ms. Fato, a ratings-world outsider,...
Lucy has really big balls. She earned her bonus this year.
so, whatever happened to egan-jones......have they been nail gunned..
is that a question or fact?
They were fined too low for the wrong reason. These entirely unproductive parasites were paid to put their AAA stamp on subprime toilet paper so that it coud be offloaded to muppets worldwide. These bastards should have benn taken out of business long before.
And we all know damn good and well that Geithner was fine with the action at the time, as it produced the fiction of a strong economy.
Had S&P rated this garbage appropriately, the shit would've hit the fan right when he was relaxing in front of it.
Can't have that, can we?
I am waiting for Obama to use the phrase "unfairly besmirched" in one of his speeches. It is hard to besmirch the turd droppings hired by AG Holder.
OJ Holder will not rest until he finds the real gun-runners!
"Such behavior" fined with 1.5 billion USD.
I don't know whether to laugh or cry. I guess I'm not so far from insanity anymore.
$1.5 billion for the RMBS and CDO racket?
That's one hell of a sweetheart deal there. Cheaper than most of the banks . . . uhm, I mean their shareholders and ultimately the captive public . . . got off for.
But, of course, no crimes were committed. ROFLMAO.
In fact, it's disgusting even to read messages like this. But the fact that nobody ever cares about it and the people accept such open large-scale corruption is disgusting even more.
Cursed world.
One finds such public apathy and indifference towards corruption in third world countries with a long history of corruption at all levels. Eventually the population recognizes the best way to navigate the corrupt system is to be corrupt themselves.
The same long history, however, teaches us also about the end of such societies. If the population forgets history it has to repeat it.
When SHTF I can imagine the people in panic screaming 'How this could have happened? How this could have happened? Who knew...? We were always being assured of...!' and similar bullshit. No, they're not the correct questions. The only correct question to ask then will be 'How could I have been so ignorant and blind to the apparent injustice that was happening right in front of my eyes?'
It is nearly impossible to get people to engage in self reflection and examination when times are "good". Why would we possibly expect them to do so when things turn sour?
I'm not asking what other people can or cannot do or how to force them to get engaged; that's beyond my capabilities. I rather ask what I can do for it. The battles are not being won by observing and noting what's happening around me from safe location with a bag full of popcorn and waiting for what others will do for me.
There's an interesting concept that might apply to this phenomenon, "Finite Pool of Worry." It posits that people have the capacity to seriously worry about very few things at a time-two or so, from what I've read on it.
In a society of massive downward mobility driven by falling real wages and papered over with debt, where the meaning of life has been defined by the omnipresent media as consumption-related status, people have multiple "little" worries that consume them, leaving no real capacity to pay attention to the larger picture outside their atomistic dramas.
It's just the march of the debt slaves. Hi ho, hi ho, off to work I go . . . willing to do whatever I'm told to do all day.
IMO, we're a robo-signing society. Sure, it looks like denial, but I think most people would admit they know what they do and how they live is fucked up . . . if it didn't affect their job security and social standing, which, in this "system," would threaten their "survival." We're a herding social species . . . being smarter than the average guy really doesn't usually pay. Breaking from the prevailing beliefs brings serious social censure, at the very least.
Sadly, consumption and the chains it imposes are truly the controlling "reality" for most people.
Bobby McSmartypants: utter poppycock, balderdash, and I've got the leaked documents to prove it!
door: knock-knock-knock
Bobby: hello?
door: nail-guns, special delivery
Bobby: crap
No honest person can compete with the central banks' infinite checkbooks. Either you "play ball," or get taken to the cleaners as your capital is consumed.
“Our government ... teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.” ( associate justice of the U.S. Supreme Court, Louis Dembitz Brandeis)
It's OK Bernoulli, you can take the pressure.
Wow S&P sure are a bunch of pussies
Aside from the lawsuit they were looking down the barrel of endless audits and government intrustions. Plus McGraw Hill (a publishing company) are big players in Common Core, I'd bet. Lots of government publishing contracts. And they use a lot of paper, which is very bad for the environment, if you get my drift.
This was just the BEGINNING of the government grinding them into dust if they didn't back off and pay their tithe to the emperor.
The S&P lawyers and CEO played some serious poker to insist the retaliation claim, then concede the claim to remove the guilty charges and "Neither Admin nor Deny Wrongdoing"
S&P probably over-accrued the potential settlment in quarters past, and will now release the over-accrual into 1Q earnings!
Win-Win
They should have at least made the government take them to court with their bullshit lawsuit. I have zero faith in our "justice" system to do the right thing... BUT at least everyone would have been able to see what a farce this lawsuit, and out justice system, really is. What did they do? Settled for $1.5 billion. Pussies.
Unfortunately, not everyone would see the farce; few are watching, and some of the watchers are willfully blind.
Go to court? That's not how crime syndicates work.
Now I'll never get the details of how the scam was perpetrated.
Boooooo
So ratings on government bonds are officially meaningless. Got it.
Always have been. Always will be. Ability to extort is hardly a tangible metric upon which to base a rating.
True.
And absurd.
I guess the gubmint can self-declare that all of its bonds are AAA.
S&P could get back at them by creating new ratings:
AAAA
AAAAA
AAAAAA
up to and including:
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA
If you had told me this story five years ago I would have quickly called it "Bullshit. Something out of a dime store fiction novel. That would never happen in real life."
Now it's just an average Tuesday.
Now think of all the people who were told 5 and 10 years ago this was conspiracy theory tin foil and have been right all along...
They promised to be good little boys and girls, and downgrade Russia (and anybody else us.gov orders) to junk.
corruption look away, hide it, camouflage it, rename it, never speak of it. .gov is a crime family and the victims are never aware the MSM makes sure of it.
they were given the goose and golden egg, (fiat money from nothing)..with that power they all became corrupt.
It is hard to choose a side in this one.
It is hard to choose a side in this one.
Well, there's the S&P and US govt who think this is anything other than a complete farce.
And then there is the rest of the World.
Just another day in the lives of the Gangs of New York.
"Youse guys gotta agree that there aint't no political retaliation.
Otherwise, we're gonna retaliate."
LoL! Do they really have to?
Nothing quite like being made to cry "Uncle Sam!"
Freedom of speech.
Just watch what you say.
If you hear something, say something. Unless it's the truth in which case we will do something to keep people from hearing something.
Cheap way to make a company become state funded.
Here is a company that really needs to reincorporate in Montenegro or Belize...
What a farce.
Well this pretty much makes all rating agencies based in the US completely irrelevant then.
And before they were...
(ok, for getting by on government requirements, but in actuality...)
Our corrupt government certainly made an example out of S&P.
How far we have fallen in such a short period of time.
We are now an oligharcy with politicians completely bought out from top to bottom.
Sad days for Amerika.
Ain't life sweet when you have a "printing press" and lady justice is bound and gagged?!!!
Bound, gagged and about to be wheeled on set in some rig for one of those extra-scary looking German porno flicks. All I can be sure of is the gimp suit with the pope hat must be Lord Blankfein ready to do God's Work on lady justice.
Following years of pandering to client demands, and assigning trillions of dollars in fixed income securities with whatever rating money bought (among other things, a factor to the credit bubble and its subsequent implosion) S&P finally tried to do the right thing and tell the truth. However in this case it picked if not the worst, then certainly the most hypocriticial credit in the world to expose - the US itself. Sure enough two weeks after the downgrade, someone made the phone call and the CEO Deven Sharma is no more.
Truth is treason in a fascist, police state
http://www.zerohedge.com/news/sp-board-fires-ceo-telling-truth-be-replac...
Goldman still in the hotseat over timberwolf cdo, you know, one shitty deal. Another slap on the writst in pipeline, no doubt.
The problem is, as everyone knows here at ZH, nobody has been been bought to account since this shit went South and the opportunity for reform presented itself in the form of AIG being unable to provide "counterparty" liquidity to the squid, then bailed out.
This is going to end so bad, naturally, as nature intended.
Edited to say how much a fucken useless cocksucker Timmy was from the start, nothing more than a self serving spinless fuckwit.
There, you get that.
As for this completely "apolitical" settlement, the only question is why the DOJ did not demand that S&P also upgrade the US to AAA+++
That is an excellent question.
And the answer is, drumroll please, because it was a politically motivated attack.
Join us next time for another game of " Truth and Consequences."
I'm guessing that'll come next in a separate "independent" action. Can't have such blatant quid pro quo, ya know.
I think it would hilarious if S&P announces next that the USA is hereby "Super Dooper AAAAAAA+++++doubleplus rating in perpetuity thanks to the expert guidance of the Treasury Department in court"
It's not a word for word attack on the credibility of Treasury nor accusation of retaliation.
But it would speak volumes.
It's only illegal if they say it is. Horse shit.
BTW, that's all "the law" has ever been. And all it ever will be.
Mob rules. Literally.
"The worst is not. So long as we can say 'This is the worst.'"
King Lear
through the lookin' glass.
I would pay $10k to get to bash Timmy tax boy in the teeth--just once.
I hope Santa brought Timmah a nice, new nail gun for Christmas. Dull nails.
Ah, that picture of Timmay makes me want to hurt him. Do you think I could convince him to come do a little boxing with me? Maybe a little randori on the mat? I promise I wouldn't make him land on his face too hard....
Funny. I didnt read anything about CDO or RMBS being the rationale for the downgrade here. Something about government spending, long-term debt structuring and something to do with interest rates.
Next they're gonna tell us that they've been manipulating gold as to give a "true price" due to the false rating agencies manipulation of government debt statistics.
https://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245316...
The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.
More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon.
The outlook on the long-term rating is negative. We could lower the long-term rating to 'AA' within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.
It's just an opinion...
I saved money and downgraded the US myself (in my own mind). But I'm a DIY type guy.
P.S. I'm expecting an audit.
Geithner looks like he needs some prune juice.
Meanwhile, after the government extorts some more fine money....middle Americans still feel the pain of sodomy. When do the real victims, the taxpayers, get a cut? Ahhh go fuck yourselves comes to mind.
Corporations are people. People have the right to free speech.
Accuse the government of retaliation anyway. Fuck 'em, especially Geithner.
I would love to pay Mr. Government man. But, I don't have any money. I spent it on beer. I do have some used beer.
I would love to pay Mr. Government man. But, I don't have any money. I spent it on beer. I do have some used beer.
On a long enough time line,,,,King George wins
"Next time you even think about downgrading our toilet paper bonds, it's Room 101 with you."
The banksters need to repay us.
So it is illegal to criticize the government, or rate their performance, now. So long 1st Amendment. Mind boggling.
Treasury Shakedown Dept to S&P: that'll be 1500 meeel-yun dolllerrrrrs!
Does S&P have 1.5 billion?
Dude ...interest rates are 0. You borrow it and then write it off your taxes. IRS will give S+P that one time deduction. Thats how African dictatorships work ... get with the program.
Corruption was never so blatant and clear.
This is a flat out mafia shake-down for "protection money" you pays up or we shuts ya down with real guns.
That WSJ bar chart which shows the fine in relation to income, the income listed for each perp outfit is FOR ONE YEAR only, not for the number of years their criminal activities for which they are being fined took place. Thus, the fine is actually a much smaller percentage of the total income made via criminal activities.
Who says crime doesn't pay? ...but only if you're politically connected.
Now this is American Exceptionalism boys and girls.
You thought Il Duce was a Fascist? You thought Der Fuher was a megalomaniac?
2015 America will outdo both those fucks. And the imbecilic sluggard sodomites that comprise the electorate will vote for it.
Perhaps there is an element of 'retailiation' for the USG to have brought a suit against S&P, but let's not disregard the fact that S&P did knowingly (by their own later admission) knowingly assign bogus investment grade ratings to garbage securities. This is standard practice at S&P, as the SEC's latest finding reports. No one agrees to pay $1.5 billion if they have done nothing wrong. Blame the 'issuer pay' revenue model for creating an incentive to assign fictictious ratings to issuers in the agencies' pursuit of greater profits (see, e.g., the demonstrably false investment grade sovereign credit rating assigned to the People's Republic of China despite the Chinese government's repudiation of nearly $4 trn of China's foreign-held sovereign bonds).