Action Against Standard and Poor's

Until now, in the throes of the 2008 financial crisis, the American justice system had preferred amiable negotiations regarding financial penalties with the renegade CEOs of several sectors, particularly banks, with one significant exception: credit rating agencies. A few days ago, long overdue grievances were announced targeting the sector’s heavyweight, Standard and Poor’s. High time!

In our time of technology and a culture where instant gratification is often the norm, we expect authorities to react immediately. When it comes to the subject covered in this piece, the federal prosecutor was confronted with a case whose level of difficulty is wrapped up in complex mathematical equations inherent in credit default swaps, sub-prime lending and other toxic financial mechanisms. In all, the complexity of the case made immediate response from the authorities impossible.

Therefore, the bloodhounds at the Department of Justice took all the time they needed in order to build up their file, something they might as well have been done seeing as it is an open secret that Attorney General Eric Holder wants to bring S&P to its knees. Holder, along with many others, considers S&P’s false calculations from Moody’s and Fitch mostly responsible for the economic decline in 2008 and its socially violent and ever-present remains.

As it stands, after reading the defendant-advanced evidence at the moment, notably emails exchanged between the cynics at S&P, it is clear that basic ethics and honesty were sold off with next to no qualms, the end having justified the means. At least, this was how it was put by a superior in a note addressed to skeptics, the end being for the benefit for the company and not necessarily for the clients, who, it should be noted, paid S&P for assessments of their products.

Of all the documents that benefit the plaintiffs, one is particularly interesting given that it succinctly summarizes how much disdain S&P had for the littlest of conventions or constraints. Eighteen months before the bubble burst in 2008, an analyst cheekily referred to “Burning Down the House” (a song by Talking Heads) by stating that the properties built by sub-primes were “going […] all the way down.” Others confirmed this, and what did one of the heads of S&P do? Orders were given to adulterate the parameters of the equations so as to tweak them in favor of the company. As for the client? Well, who gives a damn.

As a result, the day Lehman Brothers went bankrupt — Sept. 15, 2008 — the company had not been downgraded. Neither Countrywide, an enormous consumer of sub-primes, nor Washington Mutual, who also tanked, were given a warning. The huge insurance conglomerate AIG was celebrating the AAA rating when suddenly, the government had to deposit $150 billion in the latter’s reserves in order to avoid their demise and certainly the systematic risk that it would have provoked worldwide.

The situation being what it is, one would hope that the states will follow in the federal government’s footsteps by declaring grievances against S&P. In fact, the state of New York is already thinking about it, since when it comes to financial matters, they are more important than all other states. Equally, one must hope that those thrown into turmoil by S&P will also back their declaration of war. What is more, there is no one, absolutely no one, who was an actor in one of the most significant and violent economic declines since the Crash of 1929 who has not been worried. One can only hope that the head responsible and his accomplices will languish in jail in order to contemplate the enormous spike in poverty in the United States and Europe for which they are largely responsible.