Nearly a decade after credit rating firms made their contribution to crashing the global economy by certifying toxic financial instruments as top-grade investments, Standard and Poor’s Financial Services (S&P) has agreed to pay California and its two giant pension funds $335 million but admitted no responsibility.
S&P will pay $210 million to California as part of a deal with 18 other state attorneys general and the District of Columbia that will net them and the federal government $1.37 billion to end litigation over the shenanigans that supercharged the housing bubble and facilitated the subprime mortgage meltdown.
At a news conference announcing this week’s settlement, acting U.S. Justice Department Associate Attorney General Stuart F. Delery said, “S&P issued inflated ratings on billions of dollars' worth of securities despite knowing that the quality of the underlying assets was impaired and that the ratings would not hold. Put simply: We brought this case because S&P committed fraud.”
In the end, the department agreed to a deal, brandished by S&P in a statement, which says all parties agreed to settle “to avoid the delay, uncertainty, inconvenience, and expense of further litigation.” S&P said “the settlement contains no findings of violations of law by the Company, S&P Financial Services or S&P Ratings.”
Indeed, the no-fault settlement does not accuse anyone at S&P with a crime.
According to the Los Angeles Times, no one was thinking about holding the ratings agencies accountable for accepting very high fees while misidentifying financial instruments until 2009, when then-Attorney General Jerry Brown said to a couple of his aides as he exited the room after a meeting, “What are we going to do about the ratings agencies? What about them?”
They responded by putting in motion the first civil lawsuit against a ratings agency, which led to subsequent lawsuits and the settlements this week.
There’s probably a good chance the thought had occurred to other people, but the financial industry’s enormous success after the crash may have dampened enthusiasm for official action.
The New York Timescredits the Connecticut attorney general’s office with coming up with the legal strategy in 2010 that relied on unfair trade practice laws, dodging S&P’s First Amendment defense that it was just exercising free speech when issuing bogus ratings.
S&P is the only ratings agency to settle charges stemming from actions dating back a decade.