The New York Times is reporting that the U.S. Justice Department is investigating Standard and Poors. It seems they want to take a look at how the rating agency missed the toxicity of mortgage securities. The great financial collapse of 2007-08 was sparked as the housing bubble burst and financial institutions the world over were left holding bundled mortgage securities that had been leveraged and re-leveraged. The question for nearly four years has been why these securities were rated as investment grade when in fact many mortgages were made to people that had a very high liklihood to default.
In the mortgage inquiry, the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S.& P. business managers, according to the people with knowledge of the interviews. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S.& P.’s longstanding claim that its analysts act independently from business concerns. –NYT
Curious that this investigation becomes public on the heals of the U.S. AAA credit rating downgrade. While Justice claims the inquiry began before the downgrade, it is passing strange that it bubbles up to public light now. Why weren’t Holder’s people all over this say, oh maybe like January, 2009? Why do we see only S&P mentioned publicly? Both Moody’s and Fitch had the same ratings failure. Apparently, they are in the clear, for now. Of course it was only S&P that issued the downgrade, to the great displeasure of the Obama administration.
The Holder Justice Department has shown interesting discretion in the matters it pursues. No one can really explain the lack of interest in the Philadelphia voter intimidation case which was dropped. There has been no interest from Justice to look at the practices of Fannie and Freddie, still bleeding billions of red ink, but now we see the administration singling out S&P publicly. Is an axe being sharpened by those who have admitted they keep score?