More than a dozen state prosecutors are expected to join the federal suit, and the New York attorney general is preparing a separate action. The Securities and Exchange Commission has also been investigating possible wrongdoing at S&P.
Settlement talks between S&P and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of McGraw-Hill for an entire year. S&P had proposed a settlement of around $100 million, the people said.
S&P also sought a deal that would allow it to neither admit nor deny guilt; the government pressed for an admission of guilt to at least one count of fraud, said the people. S&P told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.
First, the Obama-Holder Justice Department is suing only one of the three agencies, S&P. Did S&P engage in more egregious conduct than the other two? It did not. Did S&P’s conduct alone result in the mortgage meltdown and economic collapse? No. But S&P differs in one respect from the other two agencies: It was the only agency with the temerity to downgrade the debt of the United States Treasury. So, eighteen months to the day after the downgrade, the empire struck back with a vengeance. The $5 billion judgment it seeks is more than three times the book value of its parent company, McGraw-Hill.
Second, it was the federal government, aided and abetted by its partner, the Federal Reserve, that created the subprime crisis in the first place. Remember, the Community Reinvestment Act, originally enacted during the Carter Administration and expanded during the Clinton Administration, forced banks, in order to remedy “past discrimination” and promote “fairness,” to make lower-down-payment mortgages to people with poor credit. The Federal Reserve, first under Alan Greenspan and then Ben Bernanke, kept interest rates so low that malinvestments in single-family housing ballooned to unsustainable levels. The community and mortgage banks passed the bad paper they had originated on to Fannie Mae and Freddie Mac. Fannie and Freddie in turn sold it to Wall Street. There it was packaged, with Freddie and Fannie’s implied (now, unfortunately, actual) guarantee, and with “triple A” ratings from the three credit-rating agencies.
He has charts suggesting that the Netherlands and Norway experienced greater booms than the United States. In his book The Subprime Solution, he has a chart that shows London house prices rising faster than prices in Boston.
What makes this a difficult fact is that so many explanations of the house price boom are U.S/ specific. It is hard to argue that the Community Reinvestment Act or the repeal of Glass-Steagall are what account for the home price booms in Norway or Spain. In fact, Shiller's view is that bubble/contagion is the only theory that can account for the multinational nature of the home price boom.
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