Over the past few months, I’ve written a number of pieces about the ludicrous spectacle of anyone taking Standard and Poor’s and Moody’s seriously anymore. When S&P downgraded the U.S. rating, it underscored how entirely corrupt the system has become.
Joy and celebration: maybe S&P even broke the law.
The Justice Department is investigating whether the nation’s largest credit ratings agency, Standard & Poor’s, improperly rated dozens of mortgage securities in the years leading up to the financial crisis, according to two people interviewed by the government and another briefed on such interviews.
During the boom years, S.& P. and other ratings agencies reaped record profits as they bestowed their highest ratings on bundles of troubled mortgage loans, which made the mortgages appear less risky and thus more valuable. They failed to anticipate the deterioration that would come in the housing market and devastate the financial system.
Since the crisis, the agencies’ business practices and models have been criticized from many corners, including in Congressional hearings and reports that have raised questions about whether independent analysis was corrupted by the drive for profits.[emphasis added]
To be clear, whether the Justice Department actually files charges or not, it is clear: the heads of the ratings agencies were a critical part of the mortgage scam.
What is important is this:
A successful case or settlement against a giant like S.& P. could accelerate the shift away from the traditional ratings system. The financial reform overhaul known as Dodd-Frank sought to decrease the emphasis on ratings in the way banks and mutual funds invest their assets. But bank regulators have been slow to spell out how that would work. A government case that showed problems beyond ineptitude might spur greater reforms, financial historians said.
Change is the critical part because it is unlikely that anyone from S&P will go to jail, even if charges were filed. This is most likely a civil, not criminal case.
For sure, the torpedoing the influence of the ratings agencies is just a small piece of the larger corrupt system that has to be undone.
But it would be a step in the right direction.
And, in the meantime, there should be an attempt to simply ignore these bozos.