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Standard & Poor’s To Pay $1.4 Billion For Causing Financial Crisis

The bond rating agency Standard & Poor’s (S&P) has agreed to pay $1.4 billion to settle charges related to its role in causing the financial crisis of 2008. It was due to S&P and the other rating agency’s complicity with the Wall Street banks that allowed the selling of fraudulent mortgage-backed securities. Those securities were sewn throughout the global financial system only to explode and create a panic that temporarily shut down financial markets instigating policymakers to make large bank bailouts such as TARP.

If S&P and their peers had actually done the due diligence as they were supposed to do the securities would have never received a high rating. The higher ratings were essential as many banks and funds are not allowed to own securities below a certain rating. Thus it can be reasonably argued that if the rating agencies had performed their jobs appropriately the financial crisis may never have happened as the fraudulent mortgage-backed securities could not have been so widely sold, if sold at all.

So why didn’t S&P and their peers just do their job? Simple, the rating agencies are paid by the people requesting the rating which means they feel enormous and substantive pressure to rate the securities the way the client wants. The clients in this case were the Wall Street banks that wanted to be able to sell the explosive mortgage-backed securities to their uninformed counterparts but needed a good rating to do so. Quid pro quo.

Standard & Poor’s Financial Services said Monday it has agreed to pay $1.38 billion to settle government charges that it inflated ratings of mortgage-backed securities and other assets during the housing boom, helping set off the financial crisis and recession. Under the deal, the unit of McGraw Hill Financial will pay $687.5 billion to the Justice Department, and an equal amount to 19 states and the District of Columbia. It’s the largest penalty ever recovered from a credit ratings agency.

From 2004 to 2007, S&P falsely claimed its ratings of mortgage securities and collateralized debt obligations – a type of derivative — were objective and independent, the government alleged. In reality, the ratings were “affected by significant conflicts of interest” — namely, S&P’s desire to boost revenue by rating the debt favorably to the banks selling them, the Justice Department said.

Most of the Too Big To Fail banks – from Citigroup to Bank of America to Goldman Sachs to JP Morgan – have paid some kind of fine or settlement for wrecking the US economy though none have faced criminal charges. It is worth noting that the initial story on the 2008 financial crisis – pushed primarily by the corporate media – was to blame poor and middle class people who over-borrowed as the culprits. Now it is crystal clear that the fault of the crisis is on Wall Street due to massive fraud by financial firms with many co-conspirators like S&P.

So now we know, for a fact, that it was rich banksters and not poor people that cause the financial crisis. Better late than never?

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Dan Wright

Dan Wright

Daniel Wright is a longtime blogger and currently writes for Shadowproof. He lives in New Jersey, by choice.