Standard & Poors and the ratings agencies are still the 98 pound weaklings of Wall Street compared to the banks, but taking action against them is still a good idea. Obviously it would be better if the SEC was taking legal action against one of banks that triggered the global economic crisis, but that doesn’t seem realistic at this point. Between the general discomfort with confrontation the administration plus the SEC employees always keeping an eye out for a job promotion to Wall Street, nobody should get their hopes up.
The staff of the Securities and Exchange Commission is considering recommending civil legal action against the Standard & Poor’s debt ratings agency over its rating of a 2007 collateralized debt offering.
Collateralized debt obligations, also known as CDOs, are securities tied to multiple underlying mortgage loans. The CDO generally gains value if borrowers repay. But if borrowers default, CDO investors lose money. Soured CDOs have been blamed for making the 2008 financial crisis worse. Ratings agencies have been accused of being lax in rating CDOs.
The SEC staff said it may recommend that the commission seek civil money penalties, disgorgement of fees or other actions.
S&P; should still rest easy, as there is a lot of history that suggests a relatively easy settlement that gives them blanket protection from any new legal action is already on the table. It gives the administration an opportunity to say “we fought Wall Street” without any real consequences for anyone.