Bloomberg has more details on the Justice Department’s $5 billion lawsuit against Standard and Poor’s.
Federally insured Citigroup’s Citibank unit bought into what was supposed to be the safest portion of the CDO, relying in part on S&P’s assessment of the securities, according to the complaint. It lost the entire investment when the CDO defaulted on Oct. 19, 2007. [...]
The U.S. is accusing the world’s largest credit rater of deliberately misstating the risks of mortgage bonds to keep its share of the booming business of repackaging home loans for sale as securities. The lawsuit seeks penalties that may amount to more than $5 billion, based on losses suffered by federally insured financial institutions. [...]
S&P’s CDO group ignored warnings and data from its mortgage securities unit that their MBS ratings, used in grading CDOs, were proving flawed, according to the complaint. The lawsuit includes at least 58 examples of S&P executives taking steps to appease issuers or acknowledging how pressure from banks could lessen the quality of its grades or delay downgrades.
It seems plausible to me that a $5 billion dollar lawsuit incurred for selling “crap” package as AAA to federally insured banks will dampen S&P’s eagerness to threaten the credit rating of the federal government for the immediate future. And Republicans, for their part, who as recently as December held the nation’s credit rating hostage, will have one less weapon in their rhetorical arsenal going forward.(h/t Thomas Soldan)