Economics and Financial News Report

Economicsand Financial News Report

TheStandard &amp Poor’s $1.37 Billion Settlement

Natureof theproblem Standard &amp Poor’sisaccusedof overratingtoxicmortgagesthat is one of thefactorsthat resultedin thefinancialmeltdown. S &amp P andothercreditratingcompaniesarehighlyconsideredin thefinancialsector,andanyreportbythem has an impacton theabilityof thegovernmentora companyto borroworraisemoney(Protess, 2015).Ratherthan conductratingsin an unbiasedmanner,thecompanyreceivedpaymentsfrom banksandcompaniesto offerthem positiveratingsby usingflawed statisticalmethods.Assuch,ratingcompaniessuchas S&ampP, focuson securingrepeat clientsinsteadof givingthesecompaniestherightratings.Between 2004 and2007, thecompanyfalselyratedsecuritiesworthbillions of dollars,yet theyhadinformationthatthehousingmarkethadstartedto collapseas earlyas 2006. However,thecompanydidnot warninvestors as suchan approachwould affectits coreratingbusiness. Detailsof thesettlement Thesettlementwasa resultof negotiationsbetween S &amp P andthegovernmentwherebythegovernmentinitiallydemandedover $3 billion from thecompany.Thegovernmenthadsuedthecompanyin 2013, accusingitof defraudinginvestors. Thesettlementwasto be usedto resolvelawsuitsthat emergedfrom its falseratingson mortgagesecurities,which ledto thefinancialcrisis.Accordingto thedetailson thesettlement,halfof thesettlementwill be paidto theUnited States Department of Justice whilehalfwill be paiddirectlyto theDistrict of Columbia and19 states(Protess, 2015).However,under thesignedtermsof theagreement,thecompanydidnot admitto violatingthelaw:Althoughitsigneda statementwhereitacceptedthefactthatin2005its seniormanagementdelayedtheimplementation of newratingmodelsthat could haveproducedmorenegativeratings.

References

Protess,B. (2015, February 3). S.&ampP.’s $1.37 Billion Reckoning OverCrisis-Era Misdeeds. The

NewYork Times.Retrieved February 13, 2015, fromhttp://dealbook.nytimes.com/2015/02/03/s-p-announces-1-37-billion-settlement-with-prosecutors/?_r=0

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