Standard & Poor’s announced that a new president will be taking over its helm. Douglass Peterson of Citibank will replace Deven Sharma at the end of the year. The ratings agency came under heavy fire for downgrading U.S. bonds in early August. Now, rumors are circulating that the Justice Department is planning an investigation on the company’s mortgage backed securities practices:
The U.S. Justice Department is probing S&P and Moody’s over ratings of mortgage-backed securities, according to three former employees who said last week they were interviewed by investigators. The former employees asked for anonymity because the investigation is ongoing. The inquiry is a civil matter, two of them said.
The probe is the latest of dozens of government investigations and investor lawsuits targeting S&P and Moody’s over the top grades they assigned to bonds backed by subprime mortgages. The Financial Crisis Inquiry Commission called them“key enablers of the financial meltdown.”
That was predictable. As a matter of fact I made that prediction the night that S & P made the downgrade. I feel smart all of sudden. What an odd feeling.
Peterson was CEO of Citigroup Japan for 5 years. He has spent his career working for that company. For those of you who were paying attention to all of the 2008 bailouts, Citigroup was one of the biggest offenders. They used shady accounting practices that blindsided investors and the FDIC. The following quote comes from the book Reckless Endangerment:
Citigroups investors were stunned when the flood of losses and bad assets from entities they were unaware of began backing up onto its books. So were officials at the Federal Deposit Insurance Corporation who had had no idea how many risky assets the bank had shifted, artfully, from its balance sheet. Had the FDIC known about these conduits, it would have required Citigroup to set aside more of a capital cushion for potential losses before they hit, its officials later said.
And guess who came to the rescue? That’s right the same names that are sharpening their knives over S&P in the federal government:
The most recent slide in Citigroup stock comes on the heels of news earlier this month that the Treasury Department was abandoning its initial rescue plan to buy troubled assets from banks - Citigroup had been seen as a major beneficiary of that strategy.
Instead, as part of the $700 billion bailout package that was signed into law in early October, Treasury has focused on making direct investments in banks. In exchange for equity stakes, the agency has injected $25 billion into Citigroup and an additional $100 billion into eight other major U.S. financial institutions.
Top regulators, including Federal Reserve Chairman Ben Bernanke and Timothy Geithner, president of the New York Fed, were both involved in the weekend talks over Citigroup's fate. Geithner is expected to be nominated to be Treasury Secretary by President-elect Barack Obama
You can expect S&P to reverse that downgrade in the near future. That pesky little problem has been taken care of.
Source: http://money.cnn.com/2008/11/23/news/companies/citigroup/index.htm
http://www.bloomberg.com/news/2011-08-23/s-p-hires-peterson-to-restore-ratings-confidence-as-sharma-sets-departure.html
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