By avarice run unabated,
As the market was flawed
By schemes to defraud
In bonds that were triple-A rated.
Now Justice may fin'lly report
That they're taking the raters to court
For the role of those chaps
In the housing collapse,
In which they provided support.
The US Justice Department has finally found someone accountable for the mortgage crisis: Standard & Poor's. The government alleges that S&P "knowingly and with an attempt to defraud, devised, participated in and executed a scheme to defraud investors in CDO tranches by falsely representing that their rating opinions were objective, independent and uninfluenced by any conflicts of interest." The rating agency, promising to "vigorously defend our Company against such meritless litigation," says that it "downgraded a record number" of residential mortgage-backed securities before 2007 and "repeatedly warned of deteriorating conditions in the housing market and potential additional downgrades to come, in many cases before our peers." So, the battle lines are drawn.
The Justice Department, however, may have, if not a "smoking gun", then a singing one, in the form of an unnamed S&P analyst who set his cynical views of mortgage-backed securities to music. To the tune of the Talking Heads' Burning Down The House, "Analyst D" wrote: "Housing market went softer/Cooling down/Strong market is now much weaker/Subprime is boi-ling o-ver/Bringing down the house." Perhaps this case may launch a new hip-hop musical career for Analyst D? For S&P the case is much more worrisome, as a legal victory by the government could open the floodgates of investor litigation.