Well that did not take long. The New York Times is reporting that the Justice Department is investigating Standard & Poor’s over whether they “improperly rated dozens of mortgage securities in the years leading up to the financial crisis.”
Let’s dispense with the obvious. Of course they improperly rated dozens of mortgage securities. They totally missed the sub-prime crisis. They failed miserably. We don’t need an investigation to ascertain this.
Is this payback for the U.S. downgrade? Possibly. The article notes that the investigation started before the downgrade … but then again, it was known to “the street” that the downgrade from S&P was coming before it happened.
This is, quite frankly just a huge mess – and I lay all the blame with the government. If it were not for the SEC regulations that enacted the “ratings cartel” back in ’75, none of this would be an issue. The S&P or other ratings agencies would rise and fall based on their performance and ability to generate new business in a free market. The government would have no place in determining if a business did a good job or not – the market would duly punish failure and reward success.
As always though, the government never recognizes its own failure. Congressmen and Senators rarely understand how their legislation results in these unintended consequences. “It couldn’t have been our fault! – we’re the good guys.”