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Thursday, August 18, 2011

Report: U.S. Investigating S&P Ratings of Mortgages

by Calculated Risk on 8/18/2011 12:13:00 AM

From Louise Story at the NY Times: U.S. Inquiry Eyes S.&P. Ratings of Mortgages

The Justice Department is investigating whether the nation’s largest credit ratings agency, Standard & Poor’s, improperly rated dozens of mortgage securities ... the Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S.& P. business managers ... If the government finds enough evidence to support such a case ... it could undercut S.& P.’s longstanding claim that its analysts act independently from business concerns
There is no question that S&P incorrectly rated mortgage securities, but that was just their "opinion". This investigation is apparently focused on if the analysts wanted to downgrade the ratings, but they were overruled by managers. If so, S&P might lose their first amendment protection and then be open to lawsuits from investors.