(Image Source: Wikimedia Commons)

BY CHARLIE MCKEAGUE
 

ANCHOR MEGAN MURPHY

The plot is thickening in a developing cold war between Standard and Poors -- and the U.S. government.

And the media is having a field day.

“The U.S. Justice Department is investigating the countries largest credit ratings agency.  We’re talking about Standard and Poor’s here.” (CNN)

“The New York Times says the Justice Department is looking into whether Standard and Poor’s rated dozens mortgage securities improperly in the years leading up to the housing bust.” (NY1)

“There’s concern, that S&P managers overruled company analysts who wanted to hand out lower ratings on mortgage bonds.” (Fox News)

First -- the downgrade.
Now, the investigation.
Reports suggest Standard and Poor’s -- could be in some trouble.  
HLN’s Morning Express says the investigation isn’t new, but we’re just now hearing about it.

“So it sounds like a little sour grapes after Standard and Poor’s knocked down the countries credit rating.  So they cut our rating now they are getting investigated?  Hmm what’s going on here.  But the Justice Department says no this was happening before the credit rating ever got downgraded.”

The Financial times notes – not only is S&P being investigated for improperly rating mortgage securities a while back – but also some recent insider trading.

“The Securities and Exchange Commission has asked credit rating agency Standard & Poor’s to disclose who within its ranks knew ofits decision to downgrade US debtbefore it was announced last week, as part of a preliminary look into potential insider trading…”

Alleged insider trading may not  be the worst of it – the bigger investigation centers on those alleged mortgage securities that might not have been properly rated. The Atlantic Wire explains what could have been in it for the agency.
                
“S&P scored huge profits off bestowing high ratings on over-valued mortgage bundles making them ‘less risky and more valuable,’ without foreseeing the oncoming housing collapse or its effects. The Justice Department is investigating whether or not … Standard & Poor's used their leverage to skew the ratings on any of the loan in a quest for more profit”

Since the recent housing market collapse - the agency has been under heavy scrutiny – as many accuse independent analysts being driven by profits.  The New York Times interviewed a professor who says the investigation – could change the way credit agencies operate.

“…the ratings agencies could be forced to stop making their money off the entities they rate and instead charge investors who use the ratings. The current business model, critics say, is riddled with conflicts of interest, since ratings agencies might make their grades more positive to please their customers.”

Adding to the government backlash.  The city of Los Angeles just fired S&P -- after the ratings agency downgraded it’s municipal bonds.  Two other California cities joined in.