Justice Dept suing Standard and Poors.

Discussion in 'Too Hot for Swamp Gas' started by gatordowneast, Aug 19, 2013.

  1. gatordowneast
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    gatordowneast Well-Known Member

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    Hmmmmm. Being sued because of their ratings of mortgage debt prior to the crash. However their ratings were the same as Moodys and Fitch. But, but, but...they just happened to be the rating agency that downgraded US debt....ruh roh. I'm sure that had nothing to do with Eric Holder and Justice pursuing S and P without the others? Coincidental or SOP for the regime and those not in lockstep. We report. You decide.

    http://www.bloomberg.com/news/2013-...-s-suit-was-political-payback.html?cmpid=yhoo
  2. gregthegator
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    gregthegator Well-Known Member

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    what IT means is THAT we're about to BE DOWNGRADED again...and we SHOULD be...

    going GET ugly:sick:
  3. g8trjax
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    g8trjax Well-Known Member

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    Nothing that a few trillion dollar coins won't take care of.
  4. gatordowneast
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    gatordowneast Well-Known Member

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    Probably a shot across the bow to other ratings agencies to not mess with Chicago...I mean DC.
  5. asuragator
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    asuragator Well-Known Member

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    They should all be pursued. We don't know though whether the DOJ is pursuing the others or not, or do we?

    In any case, this little set up with the ratings agencies is part of the bigger problem from what I've seen.
  6. GatorRade
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    GatorRade Well-Known Member

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    I am a bit conflicted about it. On one hand, this situation may be somewhat analogous to the Italy seismologist situation. Predictions aren't science - especially economic ones. On the other hand, there are some economists who do say that this was an identifiable threat. And it is my understanding that the ratings agencies are paid by the institutions that own the assets. There definitely seems to be a conflict of interest here that should be eliminated, if possible.

    But either way, I don't buy this "Obama is getting back at S&P" story, but I do wonder why they aren't going after the others.
  7. asuragator
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    asuragator Well-Known Member

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    Yep, they are paid by the entities that they rate. I get the Italian seismologist angle, but I don't think that is the case. From what I've read too, many folks say they should have known better about all those home mortgages filling up the tranches in which they basically rubber stamped AAA ratings.

    This brings up a bigger problem of understanding risk in these financial instruments. Do we really know how risky these things are? I mean, maybe now since the crisis taught us a lot (and which spawned all writing about S&P and Moody's etc... And I know from my own research into risk in other areas, it's never quite as certain as portrayed.

    In any case, I think a reasonable and just case could probably be made that even if they didn't "know" just how risky these instruments were, they should have and that not knowing was negligence. Look, I get banking and finance to a point, but I am not going to allow myself to be bent to what I believe is some twisted thinking which allows companies/financial institutions with great resources to escape wrongdoing while also making it seem as if they did nothing wrong.

    It's the too big to fail issue that in a sense comes back. Though S&P and other ratings agencies aren't really TBTF (since they aren't financial institutions), they are part of a system in which reason, prudence, and right/wrong often gets stood on its ear, which further has made TBTF a still current reality.
  8. GatorRade
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    GatorRade Well-Known Member

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    Indeed there is some disagreement, but I personally don't feel comfortable deciding whether blame can lay in the ratings agencies hands. The documentary Inside Job makes a compelling argument that this whole thing when down with the financial entities knowing exactly what they were doing. But the doc clearly had a point of view. Planet Money had an interesting piece on the federal inquiry commission, and described how the committee wrote a 500 page report documenting how the crisis was foreseeable. Of course, the republican minority refused to sign onto that opinion and wrote their own report. Truth is pretty elusive here, I think.

    I'm with you on the TBTF issue, but there is a difference between TBTF and WTYSHKBSWAGTPY (we think you should have known better so we are going to prosecute you). I think these institutions should have been allowed to fail, and the bailouts could have been done for me and you, the investors. Indeed, Sheila Bair was ready to have the FDIC do just that, but the government obviously went a different direction. It would have likely been a painful experience no doubt, but I think it is the best way to "punish" the correct transgressors. This type of trial is going to be weak in its power and certainly not able to deliver justice to the right people (and by "trial", I of course mean paltry settlement paid by S&P).
  9. asuragator
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    asuragator Well-Known Member

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    I wouldn't go so far as to say all the blame would lay at the feet of ratings agencies, but nor do I believe they are innocent (maybe not first in line, though). And although this has more to do with the downgrade of our ratings a few years after the crisis, I still find it hard to believe these ratings agencies didn't get hammered more from a legal standpoint for their part in the crisis. Then again, another problem is the near complete lack of prosecution or penalties for any of those at the center of the economic crisis except the fella from Goldmans.

    Yep, saw Inside Job. Thanks for the NPR link. Will definitely listen.

    I certainly don't want to give the impression that I think institutions should be prosecuted unfairly or for things that aren't criminal, but extreme forms of negligence certainly can and are criminal. And not doing ones 'due diligence' in assessing these tranches before assigning AAA ratings, to me, is negligent, possibly criminal. Financial crime, however, is always hard to prosecute because money and power have a way of buffering against it and perverting justice.

    I've read quite a few books etc...that have discussed this, Michael Lewis' The Big Short comes to mind, and I think the book Fool's Gold by Gillian Tett goes into it too (though, I can't remember which is which, lol!!!). Then again, you are right about the financial institutions knowing full well, so the bulk of the responsibility is on them, and as we have seen they have not been held to account...since that would also mean holding politicians on both sides of the political aisle to account, and that just won't happen since those cockroaches scrambled away with a quickness when the light was shined on them.

    Others know a lot more about this than I do, but I will say I am on the fence about whether they should have been allowed to fail. I tend to think having done so might have been unleashing a catastrophe far worse given the far reaching connections that were already in place (think AIG). Then again, maybe not. Maybe it would have hurt only a bit more and that hurt would have led to much better reforms. Tough call in either case.
  10. GatorRade
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    GatorRade Well-Known Member

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    I understand you and didn't think that you wanted to punish anyone for actions that weren't illegal. I just think that the reason that these behaviors are so hard to prosecute is because these systems are too complex to know exactly what is what. Certainly, there were many that predicted the crash (like those in The Big Short, Raghuram Rajan, Brooksley Born, etc.), but you can probably find people predicting crash every year.

    Certainly letting the banks fail would have come with some kind of pain, but it's main value would have come in the future when financial institutions know that they will be liable for the results of their actions. I'm not sure why Goldman wouldn't be aggressive now knowing that they can keep their profits when times are good, and fall back on the US when times are bad.

    PS Isn't it a bit funny that you and I are the most active participants on a thread about the DOJ suing a ratings agency?
  11. asuragator
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    asuragator Well-Known Member

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    Good observation. I am sure some will start chiming in.

    That's my point too. The convoluted and complex nature of it has not only makes it hard to prosecute, but it has additionally distorted how we view wrong doing in this context and that to a degree is on all of us for not demanding more. I mean, TBTF is a horrific notion in my mind. Seriously, wtf? You know we're screwed when that is an acronym.

    When you frame letting them fail like that, I can see it more and might lean toward that (which is all moot now, in a sense, but maybe not the next time, b/c there will be a next time). Not letting them fail/saving some institutions made us enablers and I think there is evidence that Goldmans and others took advantage of that and did not learn the right lessons. Still, in my mind anyway, it's a tough call b/c we just don't know how much worse it might have gotten for the rest of us.
  12. SydneySLee
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    SydneySLee Active Member

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    I am always a little leery of placing blame on a ratings agency. The agency is really made up of people making a call on data they have in front of them. Was the issue, lack of useful or accurate data or was it a planned coverup from either the top level of management or some lower level where a certain business group was told to look the other way or rubber stamp something?

    It is possible that S & P tried at some level to cover something up or okay rubber stamping something. If that is the purpose of the DOJ suit I am all for that process. But if that cannot be readily proved in a court of law, why do we always want to place blame at some entity - because in our minds, this entity is not like us but, in reality it is made up of people just like you and me, and we make mistakes all the time?
  13. gatordowneast
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    gatordowneast Well-Known Member

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    My concern would not be culpability to incorrect ratings given to mortgage backed securities. Fitch and Moody's ratings were the same. I would like to think S and P is not being "singled out" because they downgraded US debt while the others did not. Make sense?
  14. GatorRade
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    GatorRade Well-Known Member

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    I understand your concern, but it doesn't make a whole of sense for the DOJ to be doing this. (1) If they really had no unique evidence regarding S&P, why not bring cases against Moody's and Fitch as well, if for no other reason than to deflect suspicion? (2) Does the DOJ or administration really give a crap about their bond rating? It's been out there for a couple years now, and it really hasn't seemed to make much of a difference.

    I definitely wouldn't want the DOJ doing this for retribution, but I just think with this little information that we can't really conclude that this is happening.
  15. Gatorrick22
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    Gatorrick22 Well-Known Member

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    Holder needs serious prison time! He's doing exactly what the communists do in their nations... he goes after the opposition with no regard for justice and equality nor the law.

    Next step for our Commie/liberals is to kill the opposition like Putin does.
  16. asuragator
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    asuragator Well-Known Member

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    Maybe they are. And maybe when the facts come out, they did something illegal to warrant it. I don't want anyone or organization singled out for activity that isn't criminal, but neither will I assume that they are necessarily being singled out.

    S&P might have an argument...and the article suggests the judge seems sympathetic (their word) to it. But there's a lot of space between an argument and fact and as much as I think the government oversteps, I am not yet sure that happened here.
  17. Gatorrick22
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    Gatorrick22 Well-Known Member

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    Obama is spending money we can't even repay right now, so how do you think the S&P in the wrong?

    Maybe the S&P is protecting our credit rating by keeping the Obama administration from further bankrupting our nation.
  18. leogator
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    leogator Well-Known Member

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    Built in conflict of interest. If you give them truthful ratings, then you might lose some customers so that naturally prompts inflated ratings.
  19. MichiGator2002
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    MichiGator2002 VIP Member

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    Maybe they should sue Barney Frank for extolling the virtues of Fannie and Freddie in summer 2008, too?
  20. gatordowneast
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    gatordowneast Well-Known Member

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    Excellent point.

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