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Forum Post: Holder / Obama finally hits Wall Street!

Posted 5 years ago on Feb. 5, 2013, 6:49 p.m. EST by bensdad (8977)
This content is user submitted and not an official statement

US sues S&P over pre-crisis mortgage ratings

Posted: Feb 05, 2013 3:44 PM EST Updated: Feb 05, 2013 6:14 PM EST

Attorney General Eric Holder speaks at the Justice Department in Washington, Tuesday, Feb. 5, 2013. By DANIEL WAGNER and CHRISTINA REXRODE AP Business Writers

WASHINGTON (AP) - The Obama administration on Tuesday accused Standard & Poor's of refusing to warn investors that the housing market was collapsing in 2006 because it would be bad for business.

The civil charges against the credit rating agency were the administration's most aggressive action to date against those deemed responsible for contributing to the worst financial crisis since the Great Depression. They followed years of criticism that the government had failed to do enough.

The Justice Department accused S&P of knowingly inflating its ratings of risky mortgage investments that helped trigger the crisis. It's demanding $5 billion in penalties.

According to the lawsuit, S&P gave high marks to the investments because it wanted to earn more business from the banks that issued them.

"This alleged conduct is egregious - and it goes to the very heart of the recent financial crisis," Attorney General Eric Holder said at a news conference.

Experts said the lawsuit could serve as a template for future action against Fitch and Moody's, the other two major credit rating agencies.

High ratings from the three agencies made it possible for banks to sell trillions in risky investments. Some investors, including pension funds, can buy only securities that carry high credit ratings.

S&P, a unit of New York-based McGraw-Hill Cos., called the lawsuit "meritless."

"Hindsight is no basis to take legal action against the good-faith opinions of professionals," the company said in a statement. "Claims that we deliberately kept ratings high when we knew they should be lower are simply not true."

According to the lawsuit, S&P recognized that home prices were sinking and that borrowers were having trouble repaying loans. Yet these facts weren't reflected in the safe ratings S&P gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations, the lawsuit alleges.

At least one S&P executive who had raised concerns about the company's proposed methods for rating investments was ignored.

S&P executives expressed concern that lowering the ratings on some investments would anger the clients selling these investments and drive new business to S&P's rivals, the government claims.

Holder called the case "an important step forward in our ongoing efforts to investigate and punish the conduct that is believed to have contributed to the worst economic crisis in recent history."

The $5 billion in penalties the government is demanding would amount to several times the annual revenue of McGraw-Hill's Standard & Poor's Ratings division. The ratings business generated $1.77 billion in revenue in 2011. McGraw-Hill's total revenue was $6.25 billion.

The fraudulent ratings contributed to the failure of a California credit union that required a multibillion dollar government bailout, the lawsuit said. It said Western Federal Corporate Credit Union bought the investments because of S&P's endorsement.

Western Federal was among five wholesale credit unions that regulators took over in 2009 and 2010. To wind them down, the National Credit Union Administration borrowed $11.2 billion from the Treasury. It's repaid about $6.1 billion. The agency said the costs will be paid by the credit union industry and Treasury will be fully repaid.

Critics complained that the government's action Tuesday involves civil rather than criminal charges. Criminal charges, which would carry the possibility of jail time, would be harder to prove.

Former Sen. Ted Kaufman, D-Del., who served on a panel that investigated the financial crisis, argued that actions by S&P and its employees amounted to criminal fraud.

"If you're selling something that you're saying has a certain level of safety, and you know it doesn't have that level of safety, that's fraud," Kaufman said.

He said big civil fines just end up hurting shareholders.

"The executives, the folks that did it, aren't going to pay anything," Kaufman said.

A lack of stronger evidence probably prevented Justice from seeking criminal charges against the company or its employees, said Jacob Frenkel, a lawyer formerly with the Securities and Exchange Commission.

Still, the complexity of the case could make it a model for future lawsuits against the other rating agencies, he said.

"I think the S&P case is likely to be a template for use against the other rating agencies as long as the government believes it has the evidence to make its case," Frenkel said.

Joining the Justice Department in the announcement were attorneys general from California, Connecticut, Delaware, the District of Columbia, Illinois, Iowa and Mississippi, who have filed or will file separate, similar civil fraud lawsuits against S&P. Connecticut Attorney General George Jepsen said that by the end of Tuesday, 16 states and D.C. will have sued S&P.

According to the lawsuit, S&P didn't issue a mass downgrade of subprime-backed securities until mid-2007, even though it knew in 2006 that many borrowers were struggling or failing to make payments.

The mortgages were faring so poorly "that analysts initially thought the data contained typographical errors," according to the lawsuit.

In a 2007 email, another analyst said some at S&P wanted to downgrade mortgage investments earlier, "before this thing started blowing up. But the leadership was concerned of p(asterisk)ssing off too many clients and jumping the gun ahead of Fitch and Moody's."

The complaint includes a trove of embarrassing emails and other evidence that S&P analysts recognized the market's problems early.

In 2007, for example, an analyst who was reviewing mortgage bundles forwarded a video of himself singing and dancing to a song written to the tune of "Burning Down the House": "Going - all the way down, with/Subprime mortgages." The video showed colleagues laughing at his performance.

Critics have long argued that the rating agencies operate with a conflict of interest: They're paid by the banks that create the investments they're rating. If one agency appeared too strict, banks could shop around for a better rating.

S&P typically charged up to $150,000 for rating a subprime mortgage-backed security and up to $750,000 for certain other securities, the lawsuit says. If S&P lost the business to Fitch or Moody's, its main rivals, the analyst who issued the rating would have to submit a "lost deal" memo explaining why he or she lost the business.

An analyst complained in 2004 that S&P had lost a deal because its standards for a rating were stricter than Moody's. "We need to address this now in preparation for the future deals," the analyst wrote.

The documents "make clear that the company regularly would 'tweak,' 'bend,' delay updating or otherwise adjust its ratings models to suit the company's business needs," said acting Associate Attorney General Tony West.

S&P countered that the emails were "cherry picked," that they were "taken out of context, are contradicted by other evidence, and do not reflect our culture, integrity or how we do business."

It said analysts' concerns were addressed before a rating was issued and that the government left out important context.

The ratings "reflected our current best judgments," S&P said in its statement. It noted that other agencies gave the same high ratings and said the government also failed to predict the subprime mortgage crisis.

The lawsuit comes just 18 months after S&P cut its rating on long-term U.S. government debt by a notch. The downgrade followed a contentious debate between the White House and Congress over the raising of the government's borrowing limit that was resolved at the last hour.

Holder was asked about a possible link between the lawsuit and the downgrade.

"There's no connection," Holder said. He added that the department's investigation began in 2009.

But Michael Robinson, a former communications official at the SEC, said that while all three major rating agencies have lost credibility since the financial crisis, S&P's downgrade of U.S. debt put a bull's-eye on its back.

"Once you get on the government's radar, it's hard to get off scot-free," Robinson said.

The government charged S&P under a law intended to make sure banks invest safely. If S&P is found to have committed civil violations, it could face not only fines but also limits on how it does business.

McGraw-Hill shares closed down nearly 11 percent Tuesday. On Monday, after the lawsuit was first reported, they plunged nearly 14 percent.

Shares of Moody's Corp., the parent of Moody's Investors Service, another rating agency, lost nearly 9 percent Tuesday after closing down nearly 11 percent Monday.



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[-] 3 points by inclusionman (7064) 5 years ago

Too little,Too late which shows that wall st corp 1%'rs control our govt. This action will also illustrate that wall st corp 1% caused the worldwide economic crash. Not low income homeowners!


[-] 2 points by GirlFriday (17435) 5 years ago

Ya. I am of the mind that it is a little too late. Maybe if they play it right there will be a settlement.

We have American citizens that are homeless. Get my people off the street.

[-] 2 points by owsarmy (271) 5 years ago

Long list of actions against the wall st cor 1% criminals. Still too little too late.


[-] 2 points by frovikleka (2563) from Island Heights, NJ 5 years ago

Calm down bensdad. This is a civil suit. Most probably, it will be settled without the S & P having to admit any wrong doing, and a fine.

The amount of money that they are fined will be nowhere near the amount that they, in collusion with the banks have screwed multitudes of people out of.

And nobody will go to jail, for helping to have caused untold human misery throughout the world

This scenario might be the 'red meat' you needed, but for most of us who know better....we'll go 'vegan' on this scoop.

Please notify us right away when the Goldman, or BOA boys are sent to jail, OK?


[-] 3 points by TrevorMnemonic (5827) 5 years ago

Just like when they let off Goldman Sachs, HSBC, and the other frauds. -yeah there were lawsuits then too... hence getting let off the hook.

Never forget. Some people want to live in the illusion.

Aren't they still bailing out the fraudulent banks?

Isn't monetary policy still giving trillions to banks and corporations?

Aren't we still building that silk road to get those trillions in Afghanistan?

[-] 3 points by frovikleka (2563) from Island Heights, NJ 5 years ago

Unfortunately for many people, this will be proof that Obama, and Holder are doing their job.

Living in an illusion is what got us here


[-] 5 points by inclusionman (7064) 5 years ago

More street protests against this government to prosecute the 1% corp criminals who have destroyed the economy and the middle class!

That is what is needed.

[-] 3 points by frovikleka (2563) from Island Heights, NJ 5 years ago

Yes getting people out in the streets is key, along with continually resisting this corrupt system in every way we can think of

All this while reaching out to the unaware, and building COMMUNITY along the way


[-] 4 points by inclusionman (7064) 5 years ago

Building the community is an important and often overlooked element of a successful protest movement.

[-] 2 points by frovikleka (2563) from Island Heights, NJ 5 years ago

One more time here from a powerful speech I heard at St Jacobi Church in Brooklyn:

"There is UNITY in COMMUNITY, and in that there is POWER."

Empowering people to make them realize that there is strength in UNITY will embolden them.

And when enough people are emboldened, well....


[-] 4 points by inclusionman (7064) 5 years ago

Well said. Important message.

[-] 2 points by frovikleka (2563) from Island Heights, NJ 5 years ago

Thanks, that person articulated how this movement will progress in what would have taken me a paragraph or two, in eleven powerful words


[-] 3 points by inclusionman (7064) 5 years ago

The most powerful ideas can be expressed in the simplest ways.

[-] 2 points by frovikleka (2563) from Island Heights, NJ 5 years ago



[-] 3 points by TrevorMnemonic (5827) 5 years ago

what they did on Wall Street wasn't illegal - Barack Obama said on 60 minutes.

YES IT WAS. This is what happens when both sides are funded by Goldman Sachs.


there's been no real reform to break up the monopolies. And they let off HSBC and the libor frauds too. They think reform is trillions in bankster fraud bailouts.

I dare these people that believe in the illusion to read Griftopia by Matt Taibbi

[-] 3 points by frovikleka (2563) from Island Heights, NJ 5 years ago

Good clip, thanks. I can't believe that more people haven't awoken. It's sickening that these banksters aren't in jail.


[-] 1 points by enough (587) 5 years ago

I agree. Bankers don't go to jail because the President of the United States believes that they did nothing illegal. It's that simple.


Naturally, it follows that his appointees at the U.S. Justice Department and the Securities Exchange Commission don't believe bankers broke any laws. This is a fall-down-laughing farce intended for the most gullible among us. For the president to say laws need to be changed to cover the wrongdoing perpetrated by the banksters is insulting and offensive to anyone with a pulse. Criminal fraud and criminal negligence have been against the law forever. The president knows it and so does everyone else that can fog a mirror. Outrage should, therefore, be directed at the president, the guy who vowed to uphold our Constitution and the laws of the land. Only a totally bought-off, punk politician would suggest that bankers committed no crimes when it is self-evident that they did.

[-] 2 points by inclusionman (7064) 5 years ago

And here is weak defense for NOT criminally prosecuting the bankster criminals.


[-] 0 points by enough (587) 5 years ago

“Not once in my four years did a career prosecutor come into my office ... and say, ‘Lanny, we should bring a case’ and I vetoed it,” said Breuer. “These were not criminal cases that could be brought.” This is sheer unadulterated bullshit. Prosecutors at the U.S. Justice Department know from experience that the mere suggestion to bring criminal charges against Wall Street executives will effectively end their careers. The fact of the matter is politicians from both parties, including the POTUS, do not want to offend their benefactors on Wall Street by bringing criminal indictments against them. Therefore, their underlings at the SEC and the Justice Department, like Breuer and all the others, simply sit on their hands and attempt to deflect criticism for not prosecuting the banksters with risible excuses that offend our sensibilities. The half-ass attempt to defend indefensible is a slap in the face. Besides, once the government begins taking on Wall Street as it should, where does it stop? The criminal fraud and negligence is so pervasive that it will tie up the resources of the Justice Department endlessly. Implicit in the refusal to prosecute banksters is the fear that Wall Street executives, if indicted, might take down the financial system with them. They did enormous damage without being criminally charged . Could you imagine the damage they would wreak if they were threatened with jail time? These are the factors that make them invulnerable and above-the-law. Very few politicans are willing to take them on. Lip-service is about as far as they are willing to go. Without elected officials having the courage to step up and do the right thing, Wall Street will continue to get a pass and honest Americans will have their frustration and outrage unresolved.

This double standard and glaring lack of justice for all is what infuriates Americans and, conversely, emboldens Wall Street to continue their assault on honest investors unimpeded. The worse part is that we will all foot the bill again, as we are now, when Wall Street excesses lead to another bailout.

[-] 2 points by inclusionman (7064) 5 years ago

Disgusting! Your comment "Could you imagine the damage they would wreak if they were threatened with jail time?" Is important to repeat and understand, since I believe the American people were mugged/extorted when the wall st banksters demaned a trillion dollar bailout in 2008.

Obviously they own our government, and they control the world through controlling finance. I believe wholeheartedly that the wall st oligarchs have threatened more economic crashes if they are jailed. In a New York minute.

And so if we believe that, what should we do!?

[-] 1 points by enough (587) 5 years ago

Continue to put as much pressure as possible on elected officials and the U.S. Justice Department and SEC to charge Wall Street executives for criminal fraud and negligence. The control of Wall Street is so powerful and intractable that elected officials and government appointees are cowed into running interference for them.

We cannot have one standard of justice for Wall Street and another for the rest of us. Right now, Wall Street executives are a bred apart, having positioned themselves as untouchables in the eyes of the law. They need to be brought to justice and have juries in courts of law decide whether they are guilty of breaking the law. Prosecutors are deliberately preventing that process from happening, thereby undermining and making mockery of our justice system. It has now become a standing joke and a big black eye on our system of jurisprudence that Wall Street executives have managed to evade the arm of the law for such a long period of time, when evidence of wrong-doing is so ample and evident.

[-] 2 points by inclusionman (7064) 5 years ago

Agreed. Continued pressure and replacement of politicians who are running that interference until we get sonme that pursue these criminals.

We'll have to be patient. It will take years.

[-] 1 points by enough (587) 5 years ago

Right. The tenacity of politicians to remain shameless often has a way of outlasting the outrage of the people. I put my money on honest Americans prevailing at the end of the day. This sick inside job between government and Wall Street will be busted eventually because evil always finds a way to destroy itself.

[-] 3 points by inclusionman (7064) 5 years ago

Unfortunately the wall st puppetmasters long ago created a statute of limitation on these white collar crimes so we only have a year or so left before we can still get 'em.

[-] 1 points by enough (587) 5 years ago

They are trying to run out the clock and are doing so quite successfully. This is what happens when a plutocracy gets a stranglehold on a country. If there is another economic reversal of significant size in the not-to-distant future, Americans will not show such complaisance as they have heretofore and will demand justice, brushing aside the bullshit rhetoric of politicians who refuse to take action. In most cases, what goes around comes around. Perhaps this is wishful thinking. Let's see.

[-] 1 points by inclusionman (7064) 5 years ago

I agree with all that. I would suggest also pushing an end to a statute of limitation, and stronger laws that remove limits to exec personal liability, as well as longer jail sentences.

Time to get tough on crime before the next financial con job collapse.

[-] 2 points by TrevorMnemonic (5827) 5 years ago

there's an entire system at work. and they've been doing it for years and years.

[+] -4 points by Shayneh (-482) 5 years ago

Obama is just making it look like he's doing something - but he is doing it because he's pissed because they downgraded the US.

You won't hear much more after that - same ol, same ol,

Like I stated previously - for those of you who voted him back in office - Deal with it. Apparently he made all you "sheep" believe that he was going to make "hopey and changey" for all of you - NOT!

[-] 2 points by TrevorMnemonic (5827) 5 years ago

I am not going to talk with someone who operates on assumptions. Good day Shayneh. Have fun with your assumptions.

[-] 1 points by enough (587) 5 years ago

No criminal charges = No justice.

Still waiting for one bankster executive to be indicted and put in jail for blatantly defrauding innocent investors. Civil lawsuits brought by the U.S. Justice Department are meaningless smokescreens to dupe people into believing that justice is being served. Civil penalties are pocket change to these Wall Street crooks; it's simply the cost of doing business.

It's all a sick inside job from the top down. Don't fall for it. Your man, Obama, declared that Wall Street did nothing illegal. He assured the banksters that there is nothing to worry about.


[-] 0 points by Builder (4202) 5 years ago

There's only one answer to this insult to the intelligence of the public; remove yourself from trade in the greenback.

Let them keep pretending, while we all move to another currency.

[-] 0 points by bensdad (8977) 5 years ago

is this a mind game, or do you have a real way to do this?

[-] 4 points by inclusionman (7064) 5 years ago

I vote for mind game.

[-] 3 points by Builder (4202) 5 years ago

Stay out of walmart. Buy fuel from independent suppliers (if you have any) Join a local share garden, and eat what is available locally. Buy your fresh food from local co-operatives, and give the big chain stores the big miss. And here's a couple of examples of getting away from a corrupted currency unit.



[-] 0 points by WSmith (2698) from Cornelius, OR 5 years ago

Blue Ribbon, Grade AAA, Certified rancid crap, but it's good for you

Tuesday, February 5, 2013

The DOJ is finally going after Standard & Poors for falsely rating mortgage backed securities as AAA, the same as Treasury bonds, even though they knew them to be worthless. The government is asking for over $5 billion in penalties, but only after S&P refused to settle the civil charges out of court. Their lawyer is squawking very loudly that everybody said these things were gold. Treasury Sec Paulson, the Federal Reserve (that would be Alan Greenspan) and just everybody said these things were absolutely fine.

Aside from the fact that Paulson and Greenspan should be cooling their heels in prison, this defense is a sham on its face. The government's case doesn't revolve around the concept of mortgage backed securities being good or bad, it's that S&P made a ton of money putting the AAA stamp on individual issues of these rancid creations. They claimed to be auditing the mortgages to see if they would preform as represented. They weren't doing any such thing, it's like your heart surgeon having his diploma made at the copy shop. Or as the AG put it, 'your butcher making sausage with meat he would have otherwise thrown out, and telling you it's just fine".

They simply assumed these 'Liar loans' (nothing down, no documents) would preform like FHA qualified loans, when they knew the bulk of the 'tranches', that is a slice of ground up mortgages in these securities packages were doomed from the start. The huge spikes in interest, balloon payments and such nonsense down the road made the loans look profitable on paper. Even if the real estate bubble hadn't burst and people who had bought these mortgages been able to refinance them later, it would have taken the profit out of these securities. Huge commissions were taken off the top and a loan that was paid off early would be a money loser, making the securities a bad investment anyway. Something S&P certainly knew, if they bothered to look at all.

What S&P, the other rating agencies, and the mortgage companies they were being employed by, committed was more than simple fraud, it was a multi-trillion dollar criminal conspiracy. Everybody from top to bottom knew this was going on and they should all be in prison, but that isn't going to happen. The Obama Administration is afraid to move on these pirates for fear of collapsing the economy. This is not an unfounded fear, it's not a question as to whether there will be another banking collapse, but just how far into the future it will be.

The good news is that Obama has been making incremental change, the bad news is the banks are on another expansion spree buying up hundreds of smaller banks. The already too big to fail banks that were bailed out by Bush became even bigger at the time. The first few months of the Obama Administration, when anything could possibly have been done, were wasted as Republicans in the Senate refused to confirm any sub-cabinet appointments (the people who actually run the government). You might recall that they only confirmed people to run the CDC in July after it looked like we might all die from the Swine Flu. So day to day operations were carried out by Bush appointees that were shifted to civil service jobs in the last few months of the Bush disaster. The actual managers were let go, so when Obama people could get in they were still stuck with Bush cronies. They hung around until they went to work for the same corporations they failed to prosecute.

Some of these positions still haven't been filled. There is nobody running the ATF for example, you know the people in charge of catching terrorists with bombs. There is a huge shortage of Federal Judges which makes it harder for the government to bring cases against Wall Street, even if they had the budget to do it. The Republicans have made sure that they don't ["Sabotage"].

There is a collapse coming, the Republicans and the billionaires that own them will do everything they can to make it happen. If you're too big to fail, well, you make tons of money in good times, and even more when times are bad. http://www.prairie2.com/

[-] 0 points by OTP (-203) from Tampa, FL 5 years ago

So as Wall St nears all time highs, and JP Morgan fresh off their massive loss and LIBOR a distant memory....they put a charge against one of a few ratings agencies and then there you go....falling head over heals as usual....like a good little sheeple should.

Its demanding 5 billion CASH as teh penalty.

Grow up and stop acting like a dumb cheerleader.

[-] 1 points by elf3 (3900) 5 years ago

OTP you are reading my mind!!! Well saving me from typing cool thanks! I'll just add Kabuki Dance

[-] -2 points by DeathsHead1 (-111) 5 years ago

Yeah. This will solve this country's problems.

[-] 3 points by inclusionman (7064) 5 years ago

We need new leaders