There are a thousand lawyer jokes for this one. Standard & Poor’s, in an Australian court yesterday, argued that its ratings should not be taken so seriously.
Still in the wake of the global financial meltdown, there has been little accountability and even less humility from the financial sector about the roles they played and damage they inflicted. S&P, which basically tacked on AAA ratings on lousy products and collected huge fees for it, is now is arguing that those ratings really don’t mean much at all.
S&P’s Aussie lawyer said in the The Australian’s article S&P ratings are “like car reviews” and that “triple A does not mean anything hanging out there as a concept.” This follows S&P’s day in court in California, where S&P lawyers argued that false advertising and unfair business practices laws don’t apply to securities transactions, according a Bloomberg story. In that case, S&P’s lawyer said the firm “guesses” and used “magic numbers” to inflate ratings on mortgage backed securities.
Both are lousy defenses and even S&P has to be struggling to keep a straight face in the court rooms they now find themselves. The ramifications of the cases, of course, are plenty motivation to argue whatever might stick. If ratings agencies can basically sell their ratings on products, which are then packaged and priced in the market as high quality, then those agencies must bear the responsibility that comes with it.
What is pathetic about this case is just how worthless S&P sees its own ratings service. It compromised itself and profited handsomely on mortgage backed securities and collateralized debt obligations ratings before 2008. Now it has lowered its value even more by arguing in court that such ratings are akin to rating cars.
The Aussie appeals court should hold them accountable and make them pay for it. So should California’s court along with more than a dozen other suits from states and the US government.