The U.S. government has alleged that S&P, the largest rating firm in the U.S., is guilty of “falsely” representing the ratings on complex securities as being “objective, independent” and “uninfluenced by any conflicts of interest.” The charge is of civil fraud and is the first federal enforcement action against a credit-rating firm over the financial crisis. The U.S. government is suing S&P for mail fraud, wire fraud and financial-institution fraud alleging they were intentionally slow in downgrading securities trying to hold onto clients and deals as long as possible.
S&P is vehemently denying the claims. Not helping their case is the fact that on March 19, 2007, one of their analysts revised the lyrics to the Talking Heads’ “Burning Down the House” and sent them out to a few colleagues as follows:
"Housing market went softer/Cooling down/Strong market is now much weaker/Subprime is boi-ling o-ver/Bringing down the house."
At best, it seems the analyst was taking whimsical liberties with song lyrics to a popular song… at worst, it is condemning evidence that at least some of S&P’s analysts were aware of how grave the situation could become.
It will certainly be interesting to watch and see what comes of this lawsuit.
This will be interesting to watch, S&P is such a highly regarded and respected agency. If found guilty, not only does it seriously damage their creditably but it is another black eye for the financial industry at a time when the public is very sensitive to any scandals.
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