The Crucial Weakness of the Case Against S&P
Posted at 8 a.m. on Feb. 6
The Department of Justice filed a civil case against credit rating agency S&P for its role in the financial crisis, but John Carney points out a major weakness of the case: “the government’s assumption that there was something wrong with the credit rating agency changing its standards to win more business.”
“This idea that issuers recklessly demanded high ratings for even the worst bundles of mortgage-related assets is deeply ingrained in public discussions about the financial crisis… It has not, however, ever been established in any legal arena. Which means that the Justice Department will have to prove that issuers demanded fraudulently high ratings.”
“There’s not much by way of evidence in the Department of Justice’s complaint that issuers demanded fraudulently high ratings… To get an idea of how hard this will be to prove just imagine who could be called upon to provide evidence.”
The Financial Times reports that DOJ has calculated that S&P defrauded investors out of at least $5 billion.