It only took four years, but S&P finally is being sued over the high ratings it gave to mortgage-backed securities leading up to the nation's housing meltdown. Illinois joined Connecticut and Ohio yesterday in filing a lawsuit against the ratings agency alleging that the firm put profits ahead of proper ratings.
In a statement, Lisa Madigan, Illinois attorney general, said S&P compromised its independence by issuing the ratings as part of a strategy to boost market share and win more business from banks that created the securities instruments. "Privately, S&P abandoned its principles and instead used every trick possible to give deals high ratings in order to retain clients and generate revenue," she said in a statement.
According to Madigan, much of the lawsuit focuses on S&P's claims of independent ratings, which she says was not the case. Instead, she says S&P went out of its way to cater to investment banks and give artificial ratings just to win more of their business.
Considering that it has been four years since the financial meltdown, the number of Congressional hearings that have been devoted to uncovering what the rating agencies did leading up to the crisis and at least one new law (Dodd-Frank) has parts devoted to lessening the power wielded by ratings agencies, it's hard to imagine what took so long for these lawsuits.
What's your opinion? Do credit rating agencies still have too much power? Do they still serve a useful purpose?