Tit for tat

Today the justice department announced that it is investing whether S&P improperly rated mortgage backed securities during the house bubble. Uhh... ya think? Over 90% of the AAA mortgage backed securities issued in 2006 and 2007 have been downgraded to junk.

http://theoaklandjournal.com/oaklandnj/sp-says-pu-to-america/

AAA is supposed to mean no credit risk - the issuers and rating agencies knew these ratings were bogus from the start. But historically the agencies have been protected by the 1st amendment because these ratings are officially opinions. No wonder the market for these securities is dead, investors have lost their trust in anything and everything securitized.

Some folks are claiming this investigation is retaliation for the recent downgrade of the US. Maybe it is, but I'm all for it. I agree with S&P, the US is not AAA anymore but I also agree with the justice department - the business model of the rating agencies was to outright lie to investors. We need to shut these guys down and replace them with institutions that can be trusted.

http://www.theatlantic.com/business/archive/2011/08/the-backlash-against-s-p-begins/243806/