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AG Harris Takes on S&P

by: Brian Leubitz

Tue Feb 05, 2013 at 10:56:15 AM PST

Big California pension funds lost billions

by Brian Leubitz

A few days ago, I wrote about S&P upgrading California's credit rating. As I mentioned then, the arbitrariness of the ratings is troubling. Somehow California bonds are a worse investment than a series of subprime mortgage bonds circa 2007. Yes, those bonds were getting AAA ratings, while California is begging for a single A.

Turns out, that those sketchy AAA ratings hurt the state in another way: our pension funds lost big on investments made based on the notion that they were AAA rated. AG Kamala Harris, after working with the federal government on their lawsuit, announced that the state would be suing S&P as well.

Attorney General Kamala Harris today sued S&P, saying its "intentionally corrupted" ratings process cost CalPERS and CalSTRS a combined $1.36 billion.

Harris' lawsuit in San Francisco Superior Court said the two pension funds relied on the "AAA" ratings assigned to securities by S&P.(SacBee

Ultimately, this is just one small portion of the larger discussion of what role the credit ratings agencies will play in our future. During the height of the financial bubble, their power and relationships both strayed into questionable realms. Dodd-Frank made some changes, but one suspects that such a field will never really be done evolving.

Brian Leubitz :: AG Harris Takes on S&P
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Big hat, no cattle- the DOJ as enforcer (0.00 / 0)
That S&P absolutely blew the ratings on sub-prime mortgage bonds is clear.  What the DOJ asserts here is that S&P did so intentionally to defraud investors.  Given that S&P apparently had no contact with these investors, and no apparent financial relationship, these charges may be very hard to prove.

A couple other pieces of info contribute to my skepticism-

o  Moody's, Fitch and other rating agencies clearly also missed the sub-prime bond bomb.  Yet no mention of them here.

o  S&P did cut the US credit rating (first time ever), thereby greatly embarrassing the president

o  The CEO of S&P's parent company gave campaign donations to, gasp, Republicans... even Romney!!  (make him resign!)

o  The Obama administration has been under fire for not being more aggressive in pursuing cases against Wall Street firms that played a role in the financial crisis that led to the Great Recession. (Wall Street was the #1 donor of campaign funds in both 2008 and 2012)

This could simply be a bid to extort some millions in settlement (with California claiming its share- thanks Kamala!) using Chicago-style tactics with Federal force.

I could be wrong (in which case someone with better grasp please explain) but, for us here in Cali, this looks to be the Kamala for Gov. train trying to get up some speed.

S & P (4.00 / 1)
S&P is a ratings agency that investors look to for advice
It purports to be unbiased and objective ('Fair and Balances'?)
If people/government entities took S&Ps advice on mortgage securities and lost money, the question arises:

Did the S&P MISLEAD investors/government entities ?

If they did (and they probably did) they OWE investors for some of their losses

DID S&P MISLEAD investors with their ratings ?

How could they NOT SEE the risk in mortgage backed securities ?
Didn't they notice that the real estate market might have been a little overheated ???
Those crooked clowns had a direct impact in the financial meltdown !!

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