Thursday February 7 2013
The Justice Dept is suing Standard and Poors for $5 B for misrepresenting the quality of bond ratings. Justice alleges this contributed to losses during th e2008 meltdown.
Professor Elam believes that if S & P had downgraded the bonds that Justice would just as likely accuse A & P of contributing to the problem. In that scenario it is not hard to imagine S & P downgrading the bonds, then all who had to hold investment grade bonds would be looking or forced to sell into a market with no buyers, again a disaster.
Justice will of course not find fault with the asleep at the switch SEC or Fannie Mae or Freddie Mac, all of whom have culpability in this.