While Standard & Poor's agreed to pay the government, states and Calpers a total of $1.5 billion for its inflated ratings of mortgage securities prior to the 2008 financial crisis, wiping out its operating profit for last year, its business model was left unchanged.
It still will be paid by the companies whose bonds it rates. Obviously that gives S&P an incentive to inflate ratings. Already it is giving top ratings to securities backed by sub-prime auto loans that many experts view as suspect.
"S&P got off cheap, and the fact that none of the people in charge of the company at the time are going to jail tells you it’s business as usual between Washington and Wall Street," writes
Bill Saporito of Time magazine.
"The company was quick to point out that it wasn’t guilty of what it admitted to: 'the settlement contains no findings of violations of law,' the company’s press release asserts."
So where does that leave us? S&P, Fitch and Moody's continue their oligopoly among ratings agencies, Saporito notes. "At some point in the future you can expect the same problems to crop again."
Bloomberg View columnist Matt Levine expresses some skepticism about the settlement too, though from a different angle.
"If S&P's core business of rating securities was for three critical years 'a scheme to defraud investors,' why is S&P still rating securities? Not as a regulatory matter, I mean, as a market one," he writes.
"If investors were defrauded, why are they still persuaded by S&P ratings? And if they're not persuaded, why are issuers still paying for those ratings?"
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