Somebody needs to be held accountable.
That’s the logic behind the DOJ’s nearly $1 billion lawsuit against S&P. Put simply, it has been over four years since the fiscal crisis and no major entity, much less any individual – and certainly not the banks – has been held responsible in a serious, substantial and sustained way.
Individual homeowners in the US have lost trillions of dollars in value in their homes over the past four years. And the public and the politicians still have no one to blame for this devastation.
This reality will almost certainly be changing with the filing of this lawsuit. It is undeniably the case that S&P mis-rated a number of the more esoteric, collateralized debt obligations. They themselves have acknowledged as much with the benefit of hindsight.
It is also the case that they did, in fact, downgrade some mortgage backed securities during the period in question, but what will be litigated is how liable they are for the housing crisis and how much individual responsibility should be ascribed to the actions of the rating agencies.
These are not small questions. And the American public is still restive and seeking at least some degree of retribution.
Put in broader terms, an American electorate that wanted the rich to pay more in taxes and voted for it in the 2012 election is simply not satisfied, or much less assuaged, by the deal on the fiscal cliff that raised taxes on the wealthy by three points to 39.6 percent. They are looking to hold someone or something responsible for the near devastation of the housing market and S&P is probably the most convenient target.
Politically, this lawsuit serves the interest of the Obama administration. It furthers their class-based argument and allows them to find either an entity that is indeed responsible or, perhaps, a scapegoat that can take the fall.
But either way the political benefits to an administration that seems bent on pursuing class-based politics are clear and obvious. Whether S&P should be held responsible will be determined by the outcome of the lawsuit.
Further, the outstanding question is, and it is a large one, whether the government will also go after Moody’s and Fitch Ratings. This remains to be seen, as does the answer to the issue of whether the lawsuit in and of itself will produce any meaningful change in how S&P and other agencies operate going forward
