Tuesday, February 5, 2013

Government sues S&P for 'triggering' 2008 meltdown

Accused Sandy Hook killer Adam Lanza
The Justice Department will prove that the Standard and Poor credit rating agency caused the financial meltdown of 2008 by reporting falsely inflated values of mortgage-backed derivative securities.
In a suit filed in the central district of California, the government alleges the agency, which is a subsidiary of McGraw-Hill, engaged in three types of fraud to bilk investors – many of them banks and credit unions – out of an estimated $500 billion.
Alleged Aurora shooter James Holmes
The lawsuit is based on the provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). According to the complaint, S and P engaged in 1) mail fraud, 2) wire fraud, and 3) financial investment fraud to keep its ratings “artificially high.”(click here for an industrial report)
“Put simply, the alleged conduct is egregious and goes to the heart of the financial crisis,” said Attorney General Eric Holder.
While Standard & Poor is “disappointed” with the performance of residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDO), the statement says, “S and P's ratings were based on the same subprime mortgage data available to the rest of the market, including the U.S. Government...”
When S and P declared “massive downgrades” of the securities, it “more than any other event triggered the beginning of the financial crisis,” according to the Senate report.

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