Standard And Poor’s Defense Against Dept. Of Justice Lawsuit Sets Poor Standard

Author: September 5, 2013 2:18 am

US-DeptOfJustice-Seal

In retaliation for the Department of Justice’s law suit filed in February this year against the nation’s leading credit agency, Standard and Poor’s legal response filed Tuesday this week called the suit a “meritless” action. Stating that the lawsuit in and of itself was in retaliation for the credit agency’s downgrade of the United States’ rating from AAA to AA+. In its court document it further suggests that the suit is politically motivated, violates their rights to free speech and is “unconstitutional”.

 As reported by Courthouse News Service, In August 2011 S&P was the only one of the nation’s three major credit-rating agencies to lower America’s long-term rating to AA+ from AAA. It cited political gridlock over the raising of the debt ceiling as one reason for downgrade.

 “Only S&P Ratings downgraded the United States and only S&P Ratings has been sued by the United States, even though the S&P ratings challenged by the United States were no different than those of at least one other rating agency,” S&P says in the 72-page court filing.

The suit filed by the government claimed its ratings led to the collapse of the housing market and the resulting financial meltdown that crippled the economy. The credit-rating agency asked the court to throw out the lawsuit claiming its credit ratings,

“are not indicators of investment merit” and were “based upon a good faith assessment of, among other things, the performance of residential mortgages during a tumultuous time in the market.”

So, a rating service on investments ACTUAL rating IS NOT an actual indicator of investment merit? It was all just a good faith exercise? That’s your defense here? S&P goes on to say in its filing,

“Like nearly every other market participant, analyst, and interested government entity, S&P ratings did not anticipate the full speed, severity, and breadth of the collapse of the housing market and its impact on the economy as whole, S&P Ratings was not alone. Other rating agencies that have not been charged with fraud or misconduct by the United States issued ratings similar to and often identical with those of S&P ratings.”

This is a good point. No one anticipated the speed, severity and scope of the collapse or the impact. S&P was definitely not alone on that. And other ratings agencies have not been charged but that’s not to say they will not be at a later time, along with other financial entities that were involved. But far be it from me to assume that your job and sole purpose for existence is to be ahead of the curve when rating quality of investment standards

S&P suggests that the government should shoulder its share of the blame. S&P adds that the Justice Department is cherry-picking quotes from supporting documents, including internal S&P emails, that when taken out of context do not mirror their “true content.”

The rating agency also insists that banks did not rely on its statements.

Wait! What? Banks that are using your grading scale to sell their products to investors are not relying on the accuracy of those grades? If that is indeed the case then haven’t you just admitted that the rating structure is a scam and that you and the banks were in cahoots together to commit fraud for the purpose of profit?

In the July 16 ruling, U.S. District Judge David Carter was not convinced by that line of reasoning.

“Regarding the question of materiality, S&P argued that, since the issuer banks had access to the same information and models that S&P analysts did, they could not have been fooled by faulty credit ratings,” Carter wrote in his 18-page order. “This begs the question: if no investor believed in S&P’s objectivity, and every bank had access to the same information and models as S&P, is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?”

Judge Carter’s statement might be the most important and telling of all. Because when you clear away the legal jargon and look at this from its most simple perspective what I find is very similar to a couple of kids in a principal’s office. S&P’s claim that the government is suing because, ‘they were mean to us so now we’re being mean to them’ It’s preposterous right? Comical, except there’s an underlying feeling that says that could be what’s happening if nothing more comes from the bubble bursting than the United States sues the one agency which lowered our nation’s credit rating.

On the other hand, and even more telling is that, now that Standard and Poor’s is being sued and under the bright lights of interrogation it appears to be floundering amidst the crashing waves of investigation and beginning to throw everything and everyone overboard to keep itself from sinking.

What we would like to see is that all involved gets what’s coming to them from a moral high ground perspective. And with Judge Carter’s statement, and continuation of this suit, this could indeed be the beginning of just that. Stay tuned. This could be historic.

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