Skip to comments.Why S&P is in the Crosshairs of the Department of Justice
Posted on 02/08/2013 3:43:50 PM PST by GVnana
What has been distinct about Barack Obama's presidency is his inclination to operate in continuous campaign mode, to deflect attention away from his policy failures and to undermine opposition by politicizing the issues and policy responses he chooses to take up. So now with the president's attorney general Eric Holder having just announced the filing of a $5 billion Department of Justice suit against Standard & Poor'scharging that fraudulent ratings were made on risky mortgage bonds that went into default during the financial crisis of 2008one has to wonder what the political motivation might be.
First, why now? Why has it taken four years for the Obama Administration to bring this case? Second, why is it that S&P is singled out for alleged wrongdoing, when Moody's and Fitch did the very same things in assigning top ratings to similar classes of dodgy mortgage securities? The plausible answer is that it's all about political calculation on manipulating perception and outcome on the central issue of our time.
President Obama has been reminded from multiple quarters that the deficit spending and debt accumulation during his administration has the potential to undermine his legacy and precipitate a major financial crisis. Surely someone in the White House has paid attention to the various reports on the state of the U.S. Government debt rating, issued from all three credit rating agencies during the last few years.
Later in 2011 Moody's and Fitch hedged their AAA-ratings of U.S. Government debtissuing negative outlooks. But it was S&P that took the heat in August of that year, being first to actually cut the nation's rating to AA+. At the time the Obama administration lashed out at S&P, launching an unprecedented attack, specifically accusing the agency of "misleading calculations."
(Excerpt) Read more at theprojecttorestoreamerica.com ...
Over the decades, mortgage-backed securities came to be considered to be as safe as -- well, as safe as houses. That was both because default rates were historically low and because in most cases the mortgages were guaranteed by a third party: a government agency like Ginnie Mae, a government-sponsored entity like Fannie Mae or Freddie Mac or a private insurer.
One reason the securities took off was that the housing boom came along at a time when there large piles of capital building up in China and oil producing countries looking for safe investments that paid better than Treasury bills. As more of the securities were issued, the forms they took grew more complicated.
As lending standards fell, banks began creating what were termed collateralized mortgage (or debt) obligations, in which the shares in a mortgage-backed security were organized into different levels (or tranches) according to their perceived risk. Billions of dollars in these instruments were sold and resold.
Blah, blah, blah. Pretty simple to me. nobama is pissed at S&P for having the balls to downgrade the US credit rating.
The Boy Emporer is not happy with S&P.
Chicago style thuggery can be used in the cause of right, too. S&P should tell The Won [Again] what his credit rating’s going to be if he doesn’t stop persecuting them.
If you cave when the thugs come, they’ll just come more often and for more people. Better to find a way to out-thug them.
Accurate credit scores are color blind.
IMHO, things like Credit Default Swaps were in many cases fundamentally fraudulent; the companies that issued them did the equivalent of selling a fire-insurance policy to every occupant of an old (pre-sprinkler) SRO hotel when they only had enough reserves to pay 10% of the claims. If there's no fire, they pocket all the premiums. If there is a fire, they welsh on 90% of the claims. The fact that the company might not be able to cover the claims isn't an accident--welshing is a deliberate part of the business plan.
“Obama told Holder to punish S&P in retribution for their honest downgrade of US debt.”
The appropriate response is for all rating agencies to stop rating government related securities. How can you rate something honestly if downgrading it causes you to get sued?
‘Cause S&P is threatening governments’ abilities to enlarge that pile of debt and use it longer.
Yes, makes you wonder if this is a pre-emptive strike to stave of another downgrade if the debt ceiling is raised.
That is the tipping point IMHO that would give us another 2008 and scenario.
Not investment advice, but it makes you wonder about being in Treasury Bills, Bonds, and Notes, and even Savings Bonds.
What good is their "Full Faith and Credit" when the currency is going to be devalued and you end up with deep-discounted paper...
Look who is jumping on the band wagon:
SAN FRANCISCO — California’s attorney general has filed a lawsuit against debt rating agency Standard & Poor’s, claiming it inflated its ratings of certain investments, costing the state’s public pension funds and other investors billions of dollars.
Attorney General Kamala Harris filed the lawsuit on Tuesday in San Francisco Superior Court.
It comes a day after the federal government filed a complaint against Standard & Poor’s, accusing the company of fraud for giving high ratings to risky mortgage bonds that helped bring about the financial crisis.
Kalipornia supporting the Obama/Holder bullying smack down of an objective rating agency. You could write a novel on this type of rancid corruption.
Strange times we live in.
I think honest rating agencies should tell it like it is regardless of the thuggish actions of the Obama administration. If your flag gets cut down, another patriot should pick it up and tell the truth.
Ratings agencies are corporations with stockholders. Ratings companies are not individuals. A CEO has a fiduciary responsibility to his stockholders to make decisions based on their best financial interest not his personal politics. If the CEO goes cowboy with his company his stock price will drop and hell be replaced. Those are just the facts. Therefore the safest course is to refuse to rate anything where performing that task will put the company (the stockholders investment) at risk. Since the big funds can only invest in certain investment grade (meaning highly rated) instruments this will have the effect of turning un-rated instruments into trash. The CEO protects his company and hurts the big, bad bully at the same time. I doubt the government can sue because the ratings company simply refuses to rate the instrument. Its a win for freedom, a win for the CEO and a win for the stockholder.
Eric Holder having just announced the filing of a $5 billion Department of Justice suit against Standard & Poor's -- charging that fraudulent ratings were made on risky mortgage bonds that went into default during the financial crisis of 2008... Why has it taken four years for the Obama Administration to bring this case? Second, why is it that S&P is singled out for alleged wrongdoing, when Moody's and Fitch did the very same things in assigning top ratings to similar classes of dodgy mortgage securities?Why Gibson and not Martin? Why close down profitable Chrysler dealerships? For that matter, why the loser in the Kenya election? Why Mubarek and Ghaddafi instead of Ahmedinijad and Assad?
The point here is very simple. Obama has singled out S&P for punishment. His thug administration is sending the message to the other rating agencies that if you downgrade US debt like S&P did, we will come after you too with the full force of the US government.
If the major rating agencies simply stop rating US debt because of fear of retribution, or if they maintain falsely high ratings of US debt out of the same fear, Obama wins. You have to smack down a bully at some point or the cycle of thuggery will end.