DoJ lawsuit against S&P even sillier than first thought

posted at 8:41 am on February 8, 2013 by Ed Morrissey

I wrote Tuesday about the hypocrisy and perhaps vindictiveness of the Department of Justice’s lawsuit against ratings agency Standard & Poor’s for rating toxic mortgage-backed securities and their derivatives highly before the housing bubble popped.  Apparently I wasn’t tough enough on … the DoJ.  Bloomberg’s Jonathan Weil explains why the lawsuit isn’t just ill-considered, but downright silly:

Oh, the poor suckers at Citigroup Inc. and Bank of America Corp., fooled about the stench of their own garbage by those sneaky credit raters at Standard & Poor’s.

The U.S. Justice Department made some peculiar allegations in its lawsuit this week against S&P and its parent, McGraw-Hill Cos. According to the government, Citigroup was defrauded by S&P credit ratings on subprime mortgage bonds that Citigroup itself created and sold. Bank of America, too, allegedly was defrauded by S&P in the same way. …

Under the government’s theory, Citigroup and Bank of America paid S&P for ratings that convinced the banks their own CDO offal was rock-solid. And because S&P deceived them into thinking the best of their own rubbish, these banks and other lenders suffered more than $5 billion of investment losses, according to the suit.

No, that’s not a joke.  Weil boils the lawsuit’s raison d’être down to this:

For nine of the CDOs, the government’s complaint listed Citigroup as the harmed investor — without mentioning that Citigroup’s investment-banking division had managed the bonds’ offerings. The complaint identified Bank of America as the defrauded CDO investor in two instances, also without mentioning that its securities unit underwrote those bonds.

It’s a novel concept. If only S&P had given honest opinions to Citigroup and Bank of America — which were paying S&P millions of dollars for ratings — then the banks would have realized they were buying ticking time bombs from themselves. And who knows? Maybe they could have found some other hapless chumps to immolate instead, if S&P had told them in time.

Notably, neither Citi nor BofA are suing S&P over this issue, nor are they talking on the record.  They aren’t the only victims claimed by the DoJ — M&T Bank is also listed, and they didn’t produce any of the products in which they invested.  The fact that none of these entities are pursuing damages from their own bad bets on mortgage-backed securities and their derivatives probably should give a clue as to the validity of the claims being made by the DoJ.

So far, though, it’s just the Obama administration pursuing the rather laughable claim that S&P’s ratings would have made any difference to Citi and BofA on their own products.  Combine that up with the fact that this is the only ratings agency that the DoJ has pursued after the financial collapse in 2008, and it’s the most significant one that downgraded US credit while Obama has been President, and the actual raison d’être seems pretty clear.


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Tin-pot fascists always look for scapegoats when their grand schemes collapse, and Bark is the tinniest of the tinny. I’m mildly surprised he hasn’t frozen prices on consumer goods like Argentina’s female tin-pot is doing.

Bishop on February 8, 2013 at 8:44 AM

the hypocrisy and perhaps vindictiveness of the Department of Justice’s lawsuit

And bullying. And thuggery.

petefrt on February 8, 2013 at 8:46 AM

….it’s the most significant one that downgraded US credit while Obama has been President, and the actual raison d’être seems pretty clear.

It’s the Chicago way.

BacaDog on February 8, 2013 at 8:47 AM

Is Barry’s DOJ planning on suing Barney Frank and Maxine Waters for their judicious oversight?

GarandFan on February 8, 2013 at 8:51 AM

Second graders being second graders .
Minuscule jerks .
( didn’t mean to offend second graders )

Lucano on February 8, 2013 at 8:52 AM

defrauded by S&P credit ratings on subprime mortgage bonds that Citigroup itself created and sold.

Why did they create and sell something that required bribery in the first place? Well…Ed answered that in 2011

And Investors Business Daily claims that they have the “smoking gun” that shows exactly how the government created the bubble in the first place by intimidating banks into distorted lending practices — based on a flawed study:

At President Clinton’s direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations…The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno

Looks like the DOJ in the 90′s helped create a mess that the DOJ now is prosecuting. Only in America!

Weight of Glory on February 8, 2013 at 8:53 AM

Apparently, Citigroup and Bank of America are guilty of using the “Jedi Mind Trick” .. using S&P as a mirror

J_Crater on February 8, 2013 at 8:54 AM

Combine that up with the fact that this is the only ratings agency that the DoJ has pursued after the financial collapse in 2008, and it’s the most significant one that downgraded US credit while Obama has been President, and the actual raison d’être seems pretty clear.

Be a shame if anything was to happened to your business wouldn’t it? *Jersey accent*

sharrukin on February 8, 2013 at 9:01 AM

Say, didn’t Citigroup help bankroll Teh SCOAMT’s campaigns?

Steve Eggleston on February 8, 2013 at 9:02 AM

Or at least Teh SCOAMT’s 2008 campaign.

Steve Eggleston on February 8, 2013 at 9:05 AM

Be a shame if anything was to happened to your business wouldn’t it? *Jersey Chicago accent*

sharrukin on February 8, 2013 at 9:01 AM

Obama is more Capone than Gotti.

Steve Eggleston on February 8, 2013 at 9:07 AM

He can be more flexible now that the election is over!! Words to die by.

Deano1952 on February 8, 2013 at 9:15 AM

This is nothing new. The DOJ, and especially their minions in the SEC, do this all the time to small-time operators and start-up firms. Of course, in those cases, the defendants don’t have the deep pockets and connections of an S&P; so their lives and livelihoods get ruined over nothing.

Nutstuyu on February 8, 2013 at 9:19 AM

isn’t just ill-considered, but downright silly

…this just sums up everything about the whole administration!

KOOLAID2 on February 8, 2013 at 9:22 AM

Tin-pot fascists always look for scapegoats when their grand schemes collapse, and Bark is the tinniest of the tinny. I’m mildly surprised he hasn’t frozen prices on consumer goods like Argentina’s female tin-pot is doing.

Bishop on February 8, 2013 at 8:44 AM

Don’t give them any ideas. Ribeyes were on sale this week at Brookshire’s. $9.99 a pound. $2.00 off.

trigon on February 8, 2013 at 9:26 AM

I’m surprised Holder didn’t demand that Texas be stripped of her credit upgrade.

workingclass artist on February 8, 2013 at 9:26 AM

DoJ lawsuit against S&P even sillier than first thought

Not really, when you realize that this suit, as frivolous as it is, has as its purpose to inoculate the administration when S&P issues another downgrade. What they will claim is that S&P is doing it to avenge the DOJ’s bringing of the lawsuit and thus deserves no credibility.

TXUS on February 8, 2013 at 9:36 AM

Just wait and see what happens at defense and the agency.

Speakup on February 8, 2013 at 9:52 AM

It all comes down to the fact that the Obama administration is trying to make S&P look bad due to the credit downgrade.

That way they can look back at history and say that the downgrade wasn’t because of Obama’s policies, but because S&P didn’t know what they were doing.

ButterflyDragon on February 8, 2013 at 10:13 AM

It’s easy enough to see that their just trying to intimidate the ratings houses in an effort to prevent more downgrades. Once again we’re being asked not to believe our lyin’ eyes, but rather some ludicrous explanation for this administration’s actions.

Murf76 on February 8, 2013 at 10:16 AM

Glad to see thet DoJ has plenty of time for important lawsuits…

Khun Joe on February 8, 2013 at 10:39 AM

Combine that up with the fact that this is the only ratings agency that the DoJ has pursued after the financial collapse in 2008, and it’s the most significant one that downgraded US credit while Obama has been President, and the actual raison d’être seems pretty clear.

Moody’s downgraded us as well.

Hal_10000 on February 8, 2013 at 10:48 AM

This lawsuit does have ONE redeeming value.

IF it is pusued in court, and in the msm, then maybe more people will understand the relevance of repealing Glass-Steagall was to the housing bubble.

When Glass-Steagall was in place, it was ILLEGAL for INVESTMENT banks to also be COMERCIAL banks. This is why there was even a ratings agency between these companies in the first place. The ratings agency was there to check the transactions on behalf of BOTH parties.

With only ONE party on both sides of the transaction, there is NO COUNTER BALANCE to ANY RATING which makes the rating itself MEANINGLESS!

Another side of this same problem exists in the INSURANCE company inclusion. This problem was created when Citi was allowed to buy Travelers and the final planks of Glass-Steagall were removed. This allowed the sideways CDO marketplace which pretends that the entire transaction was ‘insured’.

We must re-instate ALL of Glass-Steagall. This act was only repealed after the banks grew to such size that the congress decided that they preferred to use those banks to expand the CRA for political reasons. The banks saw the repeal as their chance to dominate the entire marketplace and become ‘too big to fail’!

Freddy on February 8, 2013 at 11:01 AM

Hal_10000 on February 8, 2013 at 10:48 AM

No they didn’t.

voiceofreason on February 8, 2013 at 11:10 AM

I think that the military will be decreasing the sizes of their services in the next year. This will leave tens of thousands of young people with disrupted career plans and unemployed, Wonder what they will think of the CIC and his sycophantic progs.

scboy on February 8, 2013 at 12:53 PM

I think that the military will be decreasing the sizes of their services in the next year. This will leave tens of thousands of young people with……

Might I suggest a different tone in your writings? See below for the approved re-write:

I think that the military will be decreasing the sizes of their services in the next year. This will leave tens of thousands of young people with the ability to pursue their dreams, like playing the guitar or the pan flute, water color painting, or body-piercing, and thanks to our most magnificent leader, they won’t have to concern themselves with worrying whether or not they can get free rubbers.

Thank you, President Obama.

BobMbx on February 8, 2013 at 1:56 PM

Looks like the DOJ in the 90′s helped create a mess that the DOJ now is prosecuting. Only in America!

Weight of Glory on February 8, 2013 at 8:53 AM

Not the first time. EPA started requiring oxygenates in gasoline, and chose MTBE and started requiring refineries to add it to the gas. When they started finding the stuff in ground water, EPA wanted to go after the refineries for polluting the water with the stuff that the EPA required they use.

iurockhead on February 8, 2013 at 2:49 PM

Moody’s downgraded us as well.

Hal_10000 on February 8, 2013 at 10:48 AM

Moody’s followed S&P – as they always do.

Solaratov on February 8, 2013 at 5:25 PM

iurockhead on February 8, 2013 at 2:49 PM

And let’s not even talk about requiring the use of non-food ethanol in gas blends in quantities that do not exist.

Another Drew on February 9, 2013 at 12:40 PM

Freddy on February 8, 2013 at 11:01 AM

Please advise as to who would have been available to bail-out the investment banks from their folly if Glass-Steagall was still in existence in 2008, and thusly forbidding the commercial banks from stepping in to perform that function?
Would G-S have prevented Bear from its meltdown, or Lehman Bros?
Would it have prevented Fanny and Freddy from turning the mortgage market upside down?
G-S is a convenient hook to hang anti-Wall Street conspiracy theories upon, but it won’t hold up.
If you were right, Congress under the Dems in 2009, would have put it back in place – and that would have cured everything.

Another Drew on February 9, 2013 at 12:47 PM