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Throughout the financial crisis, much has been made of the key credit ratings agencies like Moody’s and Standard & Poor. Their opinions on the solvency of countries and businesses mean both are left quivering at the thought of these supposedly omnipotent entities giving them a downgrade. And for good reason. When these agencies decide your country, or business is no longer of top financial merit, it becomes increasingly difficult to borrow money, investors fall away and the words ‘Financial Risk’ loom large in the foreground. They are seen to be the arbiters of sound economic judgement, right? But many forget, or don’t realize, the hand these agencies had in the financial turmoil to begin with.
Now, the U.S. government is getting to the bottom of this and putting the screws down on Standard & Poor, U.S.-style – with a lawsuit, of course. According to the BBC, “A civil lawsuit would focus on S&P’s high ratings in 2007 for some mortgage-backed securities that later collapsed in value.” In essence, investors (who are also potentially suing) are claiming that the agency gave top ratings knowing fully that these were high-risk, ridiculous actions because they were paid to turn a blind eye. Charles Ferguson’s 2010 film, Inside Job, did illuminate the problem, but it’s taken this long for the legal wheels to be set in motion. S&P’s excuse thus far was that there was never any intentional wrongdoing and they “deeply regret” failing to anticipate the mortgage crisis, and before signing off, gave the tepid statement: “The Department of Justice would be wrong in contending that S&P ratings were motivated by commercial considerations and not issued in good faith.” It seems that after attacking the banks with record-breaking fines, the U.S. government is playing hardball against the rating agencies and will continue on their witch-hunt.