US files $5bn lawsuit against S&P for role in 2008 economic meltdown

The US government has filed a $5bn lawsuit against S&P for its role in the 2008 economic meltdown.

From Bloomberg:

Standard & Poor’s employees joked about the company’s willingness to rate deals “structured by cows” and sang and danced to a mock song inspired by “Burning Down the House” before the 2008 global financial collapse, according to a U.S. government lawsuit.

Two S&P analysts in April 2007 discussed the company’s model for collateralized debt obligations, with one messaging that a deal was “ridiculous” and that S&P “should not be rating it,” according to the complaint filed yesterday in federal court in Los Angeles….

The U.S. claims S&P, driven by a desire to increase revenue and market share, defrauded investors as it issued ratings on mortgage products while ignoring market risks.

“We rate every deal,” the other analyst said in an instant message, according to the government filing. “It could be structured by cows and we would rate it.”

To be fair to Standard & Poor’s, what could possibly be funnier and more of a knee-slapper than playing a role in the destruction of the global economy? Hysterical, isn’t it? Millions of jobs gone and trillions of dollars lost. My stomach hurts I’m laughing so hard. Oh those jokesters who propped up Wall Street.

Standard & Poor's

If only it weren’t so accurate. But of course, back then they were all making money and laughing their way to the bank. “Ratings” have been a big joke for years, whether it’s “buy” or “sell” ratings by Wall Street brokers or these pathetic excuses for serious ratings by agencies like S&P.

When Washington decides that it’s not going to treat these issues seriously, why the people they’re (not) regulating care?

Wall Street has gotten away with spinning BS for so long, it probably don’t even know what the truth is anymore. Just look at the whitewashes done by the big accounting firms and tell me they’re any more accurate or grounded in reality.

It’s all fun and games, until it’s not.  More on the lawsuit against S&P, from CNBC:

The U.S. government is seeking more than $5 billion in a civil lawsuit against Standard & Poor’s and parent McGraw-Hill over mortgage-bond ratings, Attorney General Eric Holder said Tuesday, marking the first federal enforcement action against a credit rating agency over alleged illegal behavior tied to the recent financial crisis.

Holder said at a news conference that S&P misled investors, causing them to lose billions, and that its ratings were affected by “significant conflicts of interests.” He said that while analysts raised red flags as early as 2003, S&P executives ignored questions about ratings.

In the filing Monday, the government said: “Considerations regarding fees, market share, profits, and relationships with issuers improperly influenced S&P’s rating criteria and models.”

The worst part about all of this is that as guilty as any of the ratings agencies may be, it’s child’s play compared to the likes of the big players on Wall Street. The ratings agencies are just the schmucks who couldn’t get jobs with the banks. Bootlickers, certainly, but hardly those most responsible for the crash. If they’re found guilty of rating trash as though it were platinum, don’t be surprised, but they’re still bait-fish compared to who was really cooking up garbage.

Wall Street

Wall Street via Shutterstock

If you think there will be any day of reckoning for the one that got away, think again. After doing numerous fund-raisers for Obama and countless other Democrats, plus being invited to the White House even today to speak as an honored guest and export on jobs in America, Goldman’s Lloyd Blankfein and the rest of Wall Street are much too deeply entrenched in DC politics to let anything like that ever happen.

But hey, a bait-fish is on the line, ready to be reeled in. It could be worse, they may have never even tried to catch the little guys like S&P. We should consider ourselves lucky, because this may be as good as it gets.

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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