DOJ Investigates Standard and Poor’s for Complicity in Economic Collapse

Just 12 days after downgrading U.S. credit ratings, the news breaks that Standard and Poor’s may soon be dragged into U.S. federal court.

The U.S. Department of Justice has launched an inquiry into the credit rating agency’s business practices leading up to the 2008 mortgage meltdown. The inquiry apparently began before S&P downgraded the U.S. credit rating on Aug. 5.

The NYT broke the news late on Aug. 17:

“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.”

The skinny: S&P, a for-profit company, may have knowingly inflated the value of credit ratings it gave to risky investment securities, which were backed by predatory subprime mortgages. The over-valuing of these investments contributed to record profits for S&P leading up to the mortgage meltdown. The tidal wave of defaults on those risky loans was the catalyst for our current recession and caused fierce ripples across the world economy.

In what seems to be another bout with faulty analysis, S&P made a $2 trillion calculation error when moving to downgrade the U.S. credit rating. When corrected, the agency shrugged and jumped to find an alternative rationale to follow through with the downgrade and inflict an economic wound on the U.S.

It’s worth mentioning that Harold “Terry” McGraw III, chairman and CEO of McGraw-Hill Companies, the parent organization of S&P, is a political donor to Republican presidential candidates. McGraw has donated to both George W. Bush’s and Mitt Romney’s campaigns, according to federal election data through 2010. (He has donated to other Republicans and a few congressional Democrats as well, including Sen. Chris Dodd, Sen. Mary Landrieu and Rep. Charles Rangel, the latter of which was recently convicted of 12 ethics violations.)

It’s encouraging to know that the Obama administration is continuing to pursue the culprits who share responsibility for the economic crisis we still suffer from today.

Somehow, I doubt the same investigations would have taken place under Bush – or any anti-regulation Republican. S&P seems to have gone easy on Bush, too. If there ever was a time to downgrade U.S. credit it would have been under the Presidency that grew the U.S. deficit to epic proportions:


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