Join        Login             Stock Quote

The Government's Nutty Suit Against S&P

 February 07, 2013 01:18 PM

If I'm getting this right, the Department of Justice is suing Standard & Poor's for failing to foretell the future correctly. If that's so, heaven help us all; the only one safe from Eric Holder now is Kreskin.

This lawsuit by the government is preposterous. You'll get no argument from me that the rating agencies (all of them; not just the one the Justice Department singled out) were key players in bringing on the housing debacle and ensuing credit crunch. If the agencies hadn't slapped triple-A ratings on all those misbegotten portfolios of subprime paper the investment banks kept churning out, no one would have bought them. A huge spigot of cash that ended up flooding into the housing market would have thus stayed shut. We now know that would have been a very good thing.  

[Related -Automating Ourselves To Unemployment]

But S&P committed fraud? No. It is one thing for the agencies to have failed to see the housing bust coming. Lots of people missed it, including (ahem) the people who ran the O.C.C., the F.D.I.C., the S.E.C., and the Fed. The DoJ alleges, though, that S&P didn't just miss the bus, but rather "knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors in" securities back by subprime mortgage loans. I have a simpler explanation for what happened. "Never attribute to malice that which is adequately explained by stupidity," goes the old saying. That piece of wisdom was never more apt than here. The people at the rating agencies weren't crooks. They were fools. They really believed their fancy computer models could accurately predict how a one-in-a-lifetime asset bubble would play itself out once the popping occurred. It turns out they were wrong.

[Related -Fed: Waiting For June… Or Godot?]

Nor are the supposedly incriminating internal S&P e-mails the government trotted out in its filing, about "bringing down the house" and "ridiculous" deals, as incriminating as we're supposed to think. All the e-mails show is that honest, vigorous debate really was going on within the agency regarding the securities' creditworthiness. That's the way the process is supposed to work. That's no evidence of conspiracy and fraud. It's just the opposite. 

One last thing: the fact that S&P, the only agency that's downgraded Treasury debt, is the only agency being sued creates a distinct impression that politics played a role in the Justice Department's decision. No one argues that S&P's basic method for rating these deals was any different from the other rating agencies'. If what S&P did was so bad, let DoJ sue the other agencies, too! But it didn't. This doesn't looks like justice to me.



Post Comment -- Login is required to post message
Alert for new comments:
Your email:
Your Website:

rss feed

Latest Stories

article imageAutomating Ourselves To Unemployment

In this current era of central planning, malincentives abound. We raced to frack as fast we could for the read on...

article imageFed: Waiting For June… Or Godot?

The Federal Reserve left interest rates unchanged yesterday, as widely expected. But the possibility of a read on...

article imageThe Single Best Place To Invest Your Money For Retirement

It was never supposed to be this daunting. At least that's what we were read on...

article imageNegative Blowback From Negative Interest Rates

The Federal Reserve is widely expected to leave interest rates unchanged today. But perhaps standing pat read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.