In the professional world of banking and finance, the rating agencies opinion is the last advice sought before the big money guys put down their dough.
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Yesterday, the U.S. Justice Department slapped Standard and Poor's with a $1 billion lawsuit saying it did a shoddy job rating mortgage bonds that exploded in the financial crisis.
In its defense, S&P is expected to argue it can't be attacked because of First Amendment rights.
I don't know who I am more surprised at: The Justice Department or S&P.
First off, Eric Holder. Wow. Five years after the event you suddenly find the rating agency was asleep at the wheel?
So was everyone else in the financial crisis... from the homebuyers who took on mortgages they couldn't afford, to the banks who issued them, to the investors who lapped up every bit of housing investment they put their hands on.
The rating agencies could have stopped the merry-go-round.
They could have noticed the obvious among a handful of savvy investors that individual mortgages supporting these investments were junk.
But the agencies didn't. They slept too.
Different from the banks or the borrowers, their job is to rate investments, estimate their value and worthiness, but they didn't stick their neck out and do their job.
To use the First Amendment to defend themselves is simply ridiculous. It’s ducking their responsibility and hiding behind the Constitution. The mistakes of these rating agencies cost us plenty.
We paid more than $187 billion to bail out Fannie Mae & Freddie Mac. Homeowners lost nearly $7.5 trillion in equity and 16 million homes went into foreclosure.
To be sure, homeowners made mistakes, but they paid by being forced out of their homes.
Banks have paid a price, a never ending list of Attorney Generals have hit them up for foreclosure settlement money.
But the rating agencies had gotten off scot-free.