Did the Govt retaliate against S&P over downgrade? (1 Viewer)

[Rove!]

http://www.reuters.com/article/2014/01/22/us-mcgrawhill-sandp-lawsuit-idUSBREA0K1PU20140122?feedType=RSS

McGraw said he returned a call from Geithner on August 8, 2011, three days after S&P cut the U.S. credit rating to "AA-plus," and that Geithner told him "you are accountable" for an alleged "huge error" in S&P's work.

"He said that 'you have done an enormous disservice to yourselves and to your country,'" and that S&P's conduct would be "looked at very carefully," McGraw said. "Such behavior could not occur, he said, without a response from the government."[/quote

In its lawsuit, the U.S. government accused S&P of hurting banks and credit unions by inflating ratings to win more fees from issuers, and then failing to downgrade debt backed by deteriorating mortgage-backed securities fast enough.

S&P has claimed that the lawsuit was filed in retaliation for the downgrade, and should be dismissed.

Pretty serious allegation....

theis will probably wind up as a he-said---he-said, ut showswhy we need people who are trustworthy at the top

 

[zamboni]

No doubt it's retaliation by the government. As the article states, note that Moody's and Fitch were not part of the lawsuit. The government pointed to S&P's ratings of mortgage-backed and other esoteric securities, the same securities that Moody's and Fitch rated and were raked over the coals for.

While S&P seemed to make an error in their calculations, at the end of the day it's still their opinion to downgrade the U.S.

 

[ffldrew]

Pretty ironic since it was S&P's bull#### ratings on CD swaps and mortgages that put us in the predicament to begin with. The people running S&P and Moody's should be in prison right now - they are lucky to have this as the only consequence of their action.

 

[hxperson]

Pretty ironic since it was S&P's bull#### ratings on CD swaps and mortgages that put us in the predicament to begin with. The people running S&P and Moody's should be in prison right now - they are lucky to have this as the only consequence of their action.

Just to be clear, the ratings weren't on swaps and mortgages, but rather structured vehicles that were comprised of swaps and mortgages.

ETA: But I agree that they messed it up real bad. I think prison might be a stretch though - more guilty of greed than deception imo.

 

[zamboni]

ETA: But I agree that they messed it up real bad. I think prison might be a stretch though - more guilty of greed than deception imo.

I agree here.

The rating agencies were just one cog in the wheel of the crisis. The system was poorly designed - the agencies were getting enormous fees from bankers for deals, so the incentive was there to rate as many deals as possible. Also, while the agencies' ratings models were clearly unrealistic (assuming unrelenting upward housing prices), I don't think there was deception going on.

Where there seems to be some gray area is the seeming lack of proper due diligence done on deals (i.e., rubber stamping). But that's tough to prove.

 

[PlasmaDogPlasma]

Don't F with America!

 

[Corporation]

Pretty ironic since it was S&P's bull#### ratings on CD swaps and mortgages that put us in the predicament to begin with. The people running S&P and Moody's should be in prison right now - they are lucky to have this as the only consequence of their action.

They did not take their share of blame for the fiasco. And they have plenty of blame to take.