A long time ago, I wrote about the bankruptcy of the ratings agencies, pointing out that S&P and Moody’s were a cog in a corrupt machine. The only startling fact in the saga about the ratings agencies is that anyone paid any attention to them anymore — the world of the chattering classes would shake every time one of these clowns issued some pronouncement about the economy, even as evidence mounted about their role. So, now, it appears at least S&P will face some judgement — though it is to be seen how harsh.
The Feds and some state prosecutors are ready to file civil charges:
The Justice Department, along with state prosecutors, plans to file civil charges against Standard $ Poor’s Ratings Service, accusing the firm of fraudulently rating mortgage bonds that led to the financial crisis, people briefed on the plan said Monday.
Up until last last week, the Justice Department had been in settlement talks with S.&P., these people said. But the negotiations broke down after the Justice Department said it would seek a settlement in excess of “10 figures,” or at least $1 billion, these people said, which would wipe out the profits of S.&P.’s parent, the McGraw-Hill Company, for an entire year. McGraw-Hill earned $911 million last year.
A suit against S.&P. would be the first the government has brought against the credit ratings agencies related to the financial crisis, despite continued questions about the agencies’ conflicts of interest and role in creating a housing bubble.
I’m of two minds on this. On the one hand, there needs to be a public accounting of the entire scam — and that has been woefully absent. So, unless a deal is cut to avoid an open trial, we might learn a lot more about the corruption inside the agencies.
On the other hand, civil charges means that, even with a guilty verdict, none of the people responsible will go to jail. In fact, any fines — as I’ve pointed out — will just make the bankers and the financial fools who crashed the economy laugh, as they’ve laughed time and again every time an institution gets hits with fines.
Because the individuals responsible keep their jobs. They keep earning millions of dollars. And if that isn’t rich enough, it’s the shareholders and customers who end up paying the freight for the fines, either in an earnings hit or through higher fees for services.
So, sure, by all means, drag out the dirt on S&P. But, let’s not have any illusions that this will stop another financial crisis from happening down the road. There is no penalty to those who rip off the people. The light stays green. Business as usual.