Will Kilmartin stand up
to the ratings agencies?
By in Rhode Island’s Future
In a recent post, I highlighted how the US Department of
Justice is suing ratings agency S&P concerning their suspicious ratings
practices that essentially fueled the financial crisis. In the same post,
I also wrote about how I believe ratings agencies S&P and Moody’s also
artificially inflated the 38 Studios bond ratings as investment grade.
Although not
impossible, it is difficult for taxpayers to file lawsuits due to what is known
as the standing law doctrine. It is therefore the obligation of
attorneys general to defend taxpayers when they have been wronged.
Colorado Attorney General John Suthers filed a lawsuit ….. against Standard and Poor’s (S&P) in connection with the ratings that it issued on structured finance securities, including residential mortgage backed securities (RMBS) that were issued at the height of the market from 2004-2007. This lawsuit is part of a joint federal-state effort to hold those responsible for their part in the foreclosure and financial crisis.
The congressionally-appointed bipartisan Financial Crisis Inquiry Commission concluded in its final report that the financial crisis “could not have happened” without ratings agencies such as S&P. Colorado’s lawsuit alleges that S&P put its financial interests above its self-described objectivity and independence.
Connecticut
began the process in 2010 (you can read the filing here) and has been urging other states to join them in taking on the ratings agencies:
Inflated ratings of mortgage securities are considered a key cause of the 2008 financial crisis. Critics accused the ratings firms of lowering standards to win business and misleading bond investors to buy debt they thought was safe but turned out to be toxic .
It would seem
that the ratings agencies were up to a similar ratings scam with regard to the
38 Studios bonds.
Will Attorney
General Peter Kilmartin stand up to the ratings agencies and fight for the
taxpayers of Rhode Island? Dawson Hodgson, the Republican challenging him, has
already staked out a strong position on 38 Studios – which promises to define
the election this year up and down the ballot.
Why hasn’t RI joined the other
states and federal government in taking on the ratings agencies for their role
in the financial crisis? Will the AG’s office sue S&P and Moody’s for
artificially rating the 38 Studios bonds as investment grade?