Standard and Poor Financial Settling
Standardand Poor Financial Settling
Findout the nature of the problem
Arguably,inflated ratings may have enabled the issuance of more subprimemortgages and mortgage-related securities which increases the demandfor a mortgage. In fact, through the process of subordination,structured products become marketed to different investors, and thisdepends on their risk profiles, investment needs and requirements. Inany case, the synthetic nature of some structured financial productscreates its set of problems. Reflectively, most of themortgage-backed securities have been bundled together with credithence warranting default swaps and pooling into special purposevehicles, investors and purchasing synthetic structured products.
Anothercrucial problem is that the issuing of public warnings about problemswas late. Hence, standard and poor was not informed about thepossible inflationary rate. Convincingly, the regulator could havenoted that the increasingly excessive risk of the shadow bankingsystem had changed for a number of years. In fact, the precise natureof the build-up or risk and its adverse impact on the systemic wereproperly understood and appreciated.
Inthe case of Standard and Poor, the Treasury Secretary acknowledgedshortcoming of the regulatory framework while dealing with theexisting shadow banking system. Thus, the problem is that the UnitedStates financial regulatory system had become outdated and failed tomaintain pace of the changes in the financial markets. Standard andPoor’ were caught in the line of a shadow banking system that hadinvolved from 2009 to date 2015 (The Guardian, 2015). By September2008, short-term money markets began to dry up while constrained theoverall lending restrictions on short-term funding hence constrainingthe banking system.
DescribeDetails of the settlement
Inaddition to that, in the process of setting, similarly to othercompanies, for instance, Goldman Sachs, the company, should admitfacts of the case and represent itself to investors. The companyshould, therefore, engage its legal advisory board to enter into asettlement agreement. Subsequent reports indicate that the creditrating agencies knew the issuing of inflated ratings. In any case,these organizations were familiar with the problem with the housingindustry. However, the mortgaging firms who were previously sufferingfrom the crises had more wealth and making enormous profits.
Giventhe subsequent challenges facing Standard and Poor, there is a needto settle the aggrieved parties. SP played a detrimental role in 2009financial crises. CDS transaction gives a counterparty risk that ispossible to hedge out by buying the protection on the counterparty.In any case, it is not suitable to say that profit and loss recordedwithout any money changing hands. For that reason, SP initiated aprogram of Credit Default Swaps (CDS) in order to restore clients’mortgages. CDS derivatives would need to be paid if the buyers decideto cash in if most companies paid massive bonuses and enormoussalaries. The situation in 2015 is that most businesses should havesurvived the recession. Hence order to restore investor`s hopes, SPworked with these firms. As illustrated earlier, credit crises led tothe falling stock markets that resulted in the worsening for thebusiness that needed short-term credit to finance their purchase.Since the company due to, of course, inflationary pressures laid outworkers causing unemployment SP attempted to develop a program ofrestoring workers unemployed or underemployed
TheGuardian. (2015, January 21). Retrieved February 13, 2015, fromhttp://www.theguardian.com/business/2015/jan/21/standard-poors-to-pay-fine-banned-rating-mortgage-securities-one-year