So, just when you thought it was over, up pops another casualty of the recession. Another "Big BanK" you think? No, a bond rating firm. Huh? They don't make loans, they don't invest in property, what gives? Well, unless you've been asleep, bond rating firms carry way too much weight in the financial world. And they get paid by the companies who ask for the rating. Hmmm. Sounds like a business that thrives on fuzzy relationships and inherent cross purpose and opportunity for fraudulent behaviors.
So, to put an end to this little bit of bad publicity, Standard & Poor's, the venerable company, decided to settle with the Justice Dept., accept a little fine, and move on. Little. Ha, ha , ha. To you and the Mayor, little is $1,000. To Standard & Poor's, little is $1.5 BILLIONS!
The Crime
Some of the Wall Street Investment Houses that we've come to loath at their very name were packaging(bundling, mixing, stacking) mortgage-backed securities for sale to other entities in the retail bond and securities business. This means brokerages, small municipalities, and pension funds of various stripes. These packages had to be rated for purchasers so they could accept the proper level of risk involved per investment amounts. S&P failed in this endeavor, failing in their role as unbiased 3rd party. They rated vast amounts of these bundles that were sold far and wide. They consisted of real estate mortgages and S&P was to examine the quality of said paper backed by the soundness of the real estate involved and those who had mortgaged their property. Sad to say, but the management of S&P admitted "mistakes", but not wrong doing. Thus, $1.5 BILLIONS.
Next Up
Moody's Investor Services
They will probably get slammed as much if not more for their role in the recession. They were more heavily involved in the mortgage back security ratings game. I predict they'll have to pay upwards of 2 Billion dollars.
Waiting in the wings: Fitch.
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