Finance : Where Will All This End ?

Yet another scandal hit the headlines last week : the U.S. government is suing Standard & Poor's in federal court in Los Angeles, accusing the subsidiary of McGraw Hill Cos Inc (MHP.N) of a scheme to defraud investors in mortgage-related securities that collapsed in the financial crisis. And the sum claimed? US$5 billion, no less!

A deeper look into the details reveals the enormity of the charge, because if it is upheld it will prove that an agency charged with the responsibility of monitoring and certifying the financial health of governments and large companies was in effect SELLING its certificates and participating in the profits that were generated! Further, in this particular case, the consequences of awarding AAA ratings to derivatives issued by banks to protect themselves from the risk posed by bad loans (commonly called subprime derivatives) was DIRECTLY responsible for the economic crash of 2008 which nearly lead to the collapse of the entire financial system!

This scandal follows on the heels of the LIBOR rate fixing scandal where bank after bank has been found guilty and fined. On 6 February, it was RBS’s turn, though at “only” US$ 600 million this sum was judged to have been below analysts’ expectations.

If ratings agencies are now shown to be as corrupt as the banks, is there ANY institution we can trust?

WHERE WILL ALL THIS END?

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