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 government is demanding that S&P to pay at least $5 billion in penalties.
Those 'risky' mortgage investments were made available at the behest of the federal government. The home lending industry was pretty much refusing to make 'sub-prime' loans for purchase of residential housing prior to an onslaught on them by virtually any arm of the government that could plausibly be seen to have any interest.
Until, the GSE Act of 1992, the HUD Best Practices Initiative of 1993-94, the Clinton era Housing Strategy, and the re-invigoration of the Community Reinvestment Act of 1995. That's when the fun began, as this 2004 speech by Fed Governor Ned Gramlich makes clear;
A table accompanying the speech shows that sub-prime lending grew thus;
|Subprime as a|
percent of total
The only reason that kind of growth was possible was that the 800lb gorillas of mortgage finance, Fannie Mae and Freddie Mac were dragooned into finding the money for those loans, by the Federal govt. Not because S&P (or their confreres, Fitch and Moody's) rated bonds comprised of those home loans to be AAA.
Would anyone reliant on being in the good graces of congress--the ratings agencies had been put in the privileged position of being the official raters of securities held by banks for regulatory capital purposes--be stupid enough to pour cold water on the bright idea 'affordable housing' also favored by those same politicians?