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Moody's Corporation will pay $864 million to settle federal and state claims that it gave misleading ratings to risky mortgage investments, leading to the subprime mortgage crisis in the US and to the Great Recession.
In the deal, announced January 13, the ratings agency will give $437.5 million to the Justice Department and $426.3 million to be divided among the 21 involved states and the District of Columbia.
The settlement does not come close to the hardship caused by the global crisis theirs and other ratings set into motion, of course. The US Financial Crisis Inquiry Commission found in 2011 that the 2008 mortgage crisis wiped out $11 trillion of American household wealth, Bloomberg notes.
"We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction," the conclusions in its final report read. [PDF]
[...] This crisis could not have happened without [Moody's, Fitch, and Standard and Poor's]. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms.
Standard and Poor agreed to pay nearly $1.4 billion two years ago to settle similar allegations by the Justice Department, 19 states and the District of Columbia, Yahoo News reports. Moody's settled before a federal lawsuit was filed; Standard and Poor settled only after the US filed a $5 billion suit against them for fraud, Reuters points out.
(Score: 4, Insightful) by Whoever on Tuesday January 17 2017, @06:47AM
According to a Libertarian, Moody's would never lie, because the threat to their business from the blow to their reputation would be too great.
What this shows is that, even with the large fine and the loss of reputation that is implicit in this, it is still worthwhile to lie.
Moody's is still in business. The executives kept their bonuses.
(Score: 2) by Sulla on Tuesday January 17 2017, @07:16AM
According to a libertarian, Moodys is a corporation. Corporations by definition can only exist because they were created and have protections given to them by the government. In a "free market" they could be class action sued out of existance by those effected (everyone). Unfortunately government intervenes and created this "corporation" that businessmen can hide behind and no longer have to worry about doing anything wrong (bad decisions, crime, etc) because they have limited liability and if in threat of collapse will be bailed out.
Less government intervention also means less protections FOR companies, not just against them.
Ceterum censeo Sinae esse delendam
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @08:35AM
Sure it does.
What a wholly practical and realistic world view backed by solid evidence and a deep understanding of human nature...
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @02:38PM
Don't worry. Moody's contract enforcement agency will take care of it.
Hmm, as much as Ancap is growing on me (Ancap is not the end all be all of libertarianism), that does explain the piddly fine here. Of course you're going to use a contract enforcement agency that's only going to give you a slap on the wrist (which you just include as a cost of having that contract enforcement agency on the accounting side) to keep up appearances. And no wonder that all the too big to fail banks just happen to be using the same contract enforcer that's hardly better than just not having one. That contact enforcer would be the US government.
While I'm still not convinced that Ancap can work in the real world, it would be nice to be able to stop doing business with this particular shitty, biased, bought-and-paid-for (perhaps I'm begging the question) contract enforcer.
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @05:42PM
And when the big bad multinational is able to purchase its own army? When you can't hang in court due to legal fees? When contracts go mysteriously missing? Whatcha gonna do?
That's right. NOTHING! You're gonna bend over and take it from the "stronger" party, and you're gonna like it or else that rich dood is gonna make you his bitch for life.
Here's a hint: you can't rely on idealism to solve things, there will always be some prick that wants to screw things over for profit or fun. Contracts are only good as long as there is someone around to make sure they are enforced.
(Score: 2) by HiThere on Tuesday January 17 2017, @08:37PM
What you're really saying is that the ideals you recognize are flawed. OK. Most ideals are. Most systems are. The thing to do when you notice a flaw is to debug it, preferably without increasing complexity, but that's not always possible. (Mind you, implementing the newly improved ideals can be a bit sticky.)
FWIW, everybody has ideals, of a sort, even if it's just "I'm all right, Jack,...". When I started working on debugging my ideals, the first one I decided to adopt was that I wouldn't lie to myself. It's been amazing just how much work trying to follow even that has been.
Javascript is what you use to allow unknown third parties to run software you have no idea about on your computer.
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @12:16PM
Except that the saint of Omaha and his crony capitalist buddies provided political cover to Moody's and made that impossible. If it were not so it WOULD have faced the music. A libertarian goal is less government = less opportunities for tyranny and corruption of the type that protects those friendly with the powers that be.
(Score: 1, Insightful) by Anonymous Coward on Tuesday January 17 2017, @02:35PM
Don't see how libertarianism comes into it here, given that financial institutions are required to use a handful of ratings agencies, Moody's included, by federal law.
When there's only four or so of them you're allowed to use, and they all give out the same bad information... well, this is what you can expect.
(Score: 1) by khallow on Tuesday January 17 2017, @03:16PM
According to a Libertarian, Moody's would never lie, because the threat to their business from the blow to their reputation would be too great.
In a libertarian economy. In a crony capitalist economy, Moody's isn't even in that business.
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @05:46PM
So a libertarian economy relies on reputation? I hadn't heard that one before, talk about a house of cards! How does it feel to endorse something so unsustainable? How does your brain rationalize these problems?
(Score: 2) by HiThere on Tuesday January 17 2017, @08:41PM
The thing is, a reputation based interaction policy works fine in a small enough group...say fewer than 25. It just doesn't scale. And when there's a strong power imbalance, the only thing that has a chance of working is something that redresses the balance. ... Except that one-on-one good intentions can handle even the power imbalance problem, but they scale even worse than reputation.
Javascript is what you use to allow unknown third parties to run software you have no idea about on your computer.
(Score: 1) by khallow on Tuesday January 17 2017, @10:55PM
So a libertarian economy relies on reputation? I hadn't heard that one before, talk about a house of cards!
A classic example of such markets is the Hawala system [wikipedia.org]. From this paper [globalsecuritystudies.com]:
its origins are not entirely clear, but it is believed to have been used first in the financing of long - distance trade in the early medieval period on trading routes such as the Silk Road, the Eastern Mediterranean and the Indian ocean. Hawala is mentioned in texts of Islamic jurisprudence as early as the 8th century. In South Asia, it appears to have developed into a fully - fledged money market instrument, which was only gradually replaced by instruments of the formal banking system in the first half of the 20th century.
So here, we have a pretty important, reputation-based, trade system that is older than any government.
(Score: 0) by Anonymous Coward on Tuesday January 17 2017, @03:45PM
You are correct, provided that the business is appropriately punished.
If there is no corrective action, then what you claim a Libertarian would state is then incorrect.
Libertarians may have ideals, but there are plenty of realists. People with profit motives will not do the right thing to meet an ideal; they will gorge until they choke on their greed. Prior to that happening, they are going to keep feeding.