U.S. Govt Sues Standard & Poor's over Mortgage Crisis Bond Ratings

The case is the government's first major action against one of the credit rating agencies that stamped their seals of approval on Wall Street's mortgage bundles. It marks a milestone for the Justice Department, which has been criticized for failing to make bigger cases against the companies involved in the crisis. 

Rating agencies are widely blamed for contributing to the financial crisis that crested in 2008 and caused the deepest recession since the Great Depression. They gave high ratings, indicating little risk for investors, to pools of mortgages and other debt assembled by big banks and hedge funds. That gave even risk-averse investors the confidence to buy them.

Some investors, including pension funds, can only buy investments that carry high ratings. In effect, rating agencies like S&P greased the assembly line that allowed banks to push risky mortgages out the door. When the housing market turned in 2007, the agencies acknowledged that mortgages issued during the bubble were far less safe than the ratings indicated. They lowered the ratings on nearly $2 trillion worth, spreading panic that spiraled into a crisis.

Another major player in the rating business is Moody's which could very well see the same action against them by the U.S. Government, too.


Reprint of Fox Business News