Thursday, February 7, 2013

Standard & Poor’s On The Dock: Accountability For Credit Rating Agencies?

Will the United States Department of Justice finally proceeding to sue the credit rating agency Standard & Poor’s finally bring accountability to the largely unregulated credit rating agencies?

By: Ringo Bones

With the United States Department of Justice finally proceeding to sue the credit rating agency Standard & Poor’s for misleading investors by its overly-rosy assessment of mortgage back securities – an action that lead to the global subprime mortgage crisis of 2008, many in the financial world are finally breathing a sigh of relief that those credit rating agencies with their rather arcane way of assessing the credit worthiness of complex financial instruments will finally be held into account. Given that such credit rating agencies will finally be held into account after operating devoid of any semblance of corporate social responsibility since the days of the Ronald Reagan presidency, will this finally spell the cleanup of Wall Street?

Given that credit rating agencies are only doing self-fulfilling prophecies of credit worthiness of the credit instruments issued by financial institutions that issued such instruments because the financial institution themselves are the very ones paying the credit rating agencies to assess the very credit instruments they are issuing, the U.S. Department of Justice’s civil lawsuit against the credit ratings agency Standard & Poor’s seems well-substantiated given that S&P’s shenanigans of issuing its top “Triple-A” ratings to rather toxic financial products less than a year before the housing bubble and the subprime mortgage crisis spread around the world. Sadly, many investors were duped because Standard & Poor’s seems to be the only one of its kind qualified to assess the credit worthiness of almost everything from complex financial instruments, financial institutions and even the credit worthiness of other sovereign countries.

Citigroup and Wells Fargo have already been sued by the U.S. Department of Justice for such financial shenanigans that lead to the housing and subprime mortgage bubble of the past five years. With a case that relates to the overtly-rosy rating of subprime mortgage backed securities, other countries affected by the subprime mortgage crisis are planning to sue Standard & Poor’s too. 

1 comment:

VaneSSa said...

The United States Justice Department's 50-billion US dollar civil lawsuit against Standard & Poor's - according to Connecticut Attorney General George Jepsen - is primarily about the breach of trust on S&P's giving Triple-A credit ratings to subprime mortgage backed securities. And the credit rating agency Moody's could be the next one to be sued.