Us Sues S&p Over Pre-crisis Mortgage Ratings

US sues S&P over pre-crisis mortgage ratings Associated Press Copyright 2013 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Updated 1:40 pm, Tuesday, February 5, 2013 WASHINGTON (AP) — The U.S. government says Standard & Poor's knowingly inflated its ratings on risky mortgage investments that helped trigger the 2008 financial crisis. The credit rating agency gave high marks to mortgage-backed securities because it wanted to earn more business from the banks that issued the investments, the Justice Department alleges in civil charges filed in federal court in Los Angeles. The case is the government's first major action against one of the credit rating agencies that stamped their approval on Wall Street's soon-to-implode mortgage bundles. According to the lawsuit, S&P knew that home prices were falling and that borrowers were having trouble repaying loans. Yet these realities weren't reflected in the safe ratings S&P gave to complex real-estate investments known as mortgage-backed securities and collateralized debt obligations. S&P executives expressed concern that lowering the ratings on some investments would anger the clients selling these investments and drive new business to S&P's rivals, the government claims. On Tuesday, California's attorney general filed a lawsuit in San Francisco Superior Court claiming that S&P's inflated ratings on risky mortgage bonds cost the state's public pension funds and other investors billions of dollars. Rating agencies are widely blamed for contributing to the financial crisis that caused the deepest recession since the Great Depression. The government's case sides with critics of rating agencies who have long argued that the agencies suffer from a conflict of interest. Because they're paid by the banks that create investments they're rating, the agencies had to compete for banks' business.

 

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