Standard and Poors Suit
Here another one of those economic posts YAWN!
Yadda yadda Self regulating Market.
In May 2007, Standard & PoorÃ¢ÂÂs 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 worldÃ¢ÂÂs 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.
Ã¢ÂÂDuring this period, nearly every single mortgage-backed CDO that was rated by S&P not only underperformed but failed,Ã¢ÂÂ Attorney General Eric Holder said yesterday at a news conference. Ã¢ÂÂPut simply, this alleged conduct is egregious, and it goes to the very heart of the recent financial crisis.Ã¢ÂÂ
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