Standard and Poors Suit

labrea_gwFebruary 5, 2013

Here another one of those economic posts YAWN!
Yadda yadda Self regulating Market.
In May 2007, Standard & PoorâÂÂs confirmed its initial AAA ratings on $772 million of a collateralized debt obligation known as Octonion I. Within 10 months, the Citigroup Inc. (C) deal defaulted, costing investors and the bank almost all their money.

Octonion I underscores how inflated grades during the credit boom contributed to more than $2.1 trillion in losses at the worldâÂÂs financial institutions after home-loan defaults soared and residential prices plummeted. The U.S. is seeking penalties against S&P and its New York-based parent, McGraw-Hill Cos., that may amount to more than $5 billion, based on losses suffered by federally insured banks.
âÂÂDuring this period, nearly every single mortgage-backed CDO that was rated by S&P not only underperformed but failed,â Attorney General Eric Holder said yesterday at a news conference. âÂÂPut simply, this alleged conduct is egregious, and it goes to the very heart of the recent financial crisis.âÂÂ

That NASTY BIG GOVERNMENT contends.

"The government also refers to e-mails in which S&P employees appear to know how severe the subprime mortgage crisis is, even though they still had high ratings on subprime-backed mortgage bonds. In one report, the performance of subprime investments was so bad that S&P employees thought the numbers must be typos. One analyst e-mailed a video of himself singing about the collapse of subprime mortgages, with colleagues laughing."

The lawsuit also points to e-mails in which an S&P analyst says executives fear angering the banks by assigning low ratings to their securities. In another e-mail, an analyst complains about missing out on a deal because S&P's criteria on a rating were stricter than those of its rival Moody's.

Better late than never!

Here is a link that might be useful: No Stadards

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tobr24u(z6 RI)

Finally, a case comes forward...

    Bookmark   February 6, 2013 at 5:11AM
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nancy_in_venice_ca Sunset 24 z10

Better late than never!

True...

    Bookmark   February 6, 2013 at 12:48PM
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labrea_gw

Look how long it took to build one case.

    Bookmark   February 6, 2013 at 12:56PM
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jodik_gw

I do believe it came out quite a while ago that both S&P's and Moody's had lied outright about ratings, and knew well beforehand that the banks were going into failure mode.

    Bookmark   February 6, 2013 at 5:56PM
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labrea_gw

Assumptions & hearsay become solid cases with evidence!

    Bookmark   February 6, 2013 at 11:19PM
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mylab123(z5NW)

So, what does anyone really believe will come of all this?

    Bookmark   February 6, 2013 at 11:52PM
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chase_gw

It will be interesting to see the outcome.

The DOJ spent a lot of time building this case. Part of me thinks that they would not have brought the charges if they didn't think they could win. The other part of me (the jaded part) thinks they just want to appear to be seeking justice.

Had this happened before the election I would be convinced of the latter. Given its post election I lean to the former.

    Bookmark   February 7, 2013 at 7:40AM
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PRO
Brushworks Spectacular Finishes(5)

Once again, Obama biting the hands that fed him campaign money. $28,406.00

I think you're right Chase, (appear to be seeking justice). There were laws in effect to prevent what happened, but were not enforced.

    Bookmark   February 7, 2013 at 8:05AM
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jmc01

I think at least part of it will be thrown out. How can the Dept of Justice say that Citicorp securitized mortgages, Citicorp paid S&P to have them rated, Citicorp then sold them to another part of Citicorp at which point they lost value .... And then say that the loss was S&P's fault? That's part of the lawsuit. BAC is another part under the exact same scenario. There are a couple of other names in slightly different circumstances. Without knowing all the evidence, on the surface it looks like a nicely timed lawsuit....nicely timed to be filed right after the election.

    Bookmark   February 7, 2013 at 9:10PM
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labrea_gw

Sounds paranoid!

    Bookmark   February 9, 2013 at 9:20AM
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jmc01

what's paranoid? That's the lawsuit.

    Bookmark   February 9, 2013 at 10:29AM
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david52 Zone 6

Why didn't they sue the other rating agencies - Moody's gave the same ratings to the same bundled garbage.

    Bookmark   February 9, 2013 at 12:06PM
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labrea_gw

The time element as opposed to that just how long it all took!

    Bookmark   February 10, 2013 at 10:40PM
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fouquieria(10b)

This kind of crap has been going on for years. That's exactly why Republicans feed on deregulation. The less regulation, the more opportunity for their type of parasitic capitalism.

In the end, the rating agencies hardly mattered.

For weeks, Wall Street wondered whether Moody's Investors Service, Standard & Poor's and Fitch's, the three major agencies rating corporate debt, would drop Enron's rating below investment grade.

Enron and Dynegy warned that cutting the rating might jeopardize Dynegy's acquisition of Enron. Executives at big securities firms that stood to profit from the deal pressed Moody's to keep ratings at investment grade, even as Enron bonds fell to levels indicating that the debt was highly risky.

But even an investment-grade rating could not save Enron's business from collapse over the last month. After a series of damaging revelations about Enron's finances, the company's partners demanded extra capital for its trades or stopped trading with it. By the time the rating agencies decided yesterday that Enron might well default on its debt, Dynegy had decided on its own to walk away.

''It wasn't really the reason that Dynegy backed out of the deal,'' said Todd Shipman, the Standard & Poor's analyst who was the first to cut Enron's rating yesterday.

The cuts dim the hopes Enron had of avoiding bankruptcy. All three agencies slashed Enron's debt far below investment grade. Moody's cut Enron's rating 5 notches, Standard & Poor's lowered it 6, and Fitch slashed it 10, to CC, its third-lowest grade.

''Default is a probability,'' said Glen Grabelsky, the senior director of credit policy for Fitch. Enron has $13 billion in debt outstanding and about $10 billion more in loans, made by partnerships, that the company has guaranteed.

The aggressive rating cuts may not mollify the investors who have sharply criticized the agencies for being slow to act in recent weeks. Officials at all three agencies defended themselves yesterday, saying they had acted prudently.

After Dynegy agreed to buy Enron, Moody's tried to calculate the chances that the deal would go through, that Enron would remain strong until it was completed and that the combined company would carry a strong rating, said John Diaz, managing director for Moody's power and energy group.

At first, those questions seemed to have reassuring answers, Mr. Diaz said, so Moody's kept Enron's investment-grade rating.

-Ron-

    Bookmark   February 11, 2013 at 12:56AM
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jmc01

One has to care about something in the first place before paranoia can set in.

    Bookmark   February 11, 2013 at 5:25AM
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labrea_gw

Ah well we are both immune then!

    Bookmark   February 11, 2013 at 8:44AM
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