Judge slams S&P 's defense

Judge slams S&P 's defense

Judge slams S&P

A US judge has refused to dismiss a $5-billion government civil fraud suit against Standard & Poor’s, slamming the defendant’s argument that investors’ were at fault for trusting its credit ratings on mortgage-backed securities.

“Defendants repeatedly asserted that no reasonable investor would have relied on S&P’s claims of independence and objectivity. 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,” US District Court Judge David Carter said in a written decision.

“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?”

The decision allows the government’s case against S&P to proceed.

The government is alleging that S&P inflated ratings on residential-mortgage-backed collateralized debt obligations (CDOs) in order to win more fees from issuers and banks. The complaint further charges that S&P failed to downgrade the ratings in spite of knowing about the deterioration of residential mortgage-backed securities.

Further the discussion. What's your take on S&P's rationale?

  • graham 2013-07-19 9:19:21 AM
    S&P is off-base here and this judge has told them so. I think that we have to acknowledge that the rating agencies share culpability in the collapse.
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  • Incredulous 2013-07-19 2:46:51 PM
    S&P is partly right. The Wall Street banks constructed the securities, were fully knowledgeable that the underlying assets were crap, and therefore were complicit in any resulting fraud. S&P are basically pleading "we knew our ratings were useless, but they did too!" That's possibly one of the most honest things I've ever heard from a major financial institution, but it hardly exonerates them.
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