Now, this is awkward. One agency of the federal government is suing a company for fraud while another agency continues to endorse it.
On Monday in Los Angeles, the Department of Justice sued Standard & Poor's and its parent McGraw-Hill for $5 billion. The claim is that S&P committed civil fraud when it issued high credit ratings on mortgage-related securities prior to the financial crisis of 2008. Sixteen states and the District of Columbia have piled on the suit.
No doubt investors who relied on the opinions of S&P and the other big credit-rating agencies, Moody's and Fitch, suffered terrible losses during the crisis. That was in part because the federal government forced investors to rely on them. Longstanding rules at the Securities and Exchange Commission and other agencies required institutions to hold assets graded highly by these government-approved rating agencies.
And to this day, more than two years after the Dodd-Frank law ordered their repeal, SEC rules still force institutions to follow the advice of these government-anointed credit raters. Therefore the more appropriate defendant for Monday's lawsuit would be the SEC. But as a modest first step before suing a company for $5 billion, shouldn't the government at least stop mandating its products?
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