Big lawsuits are great opportunities to look at the state of mind of reporters, pundits and bloggers. I have posts on the case focused on the facts, the law and what they say about the Department of Justice. Of course, my biases are obvious: I think the DOJ refused to enforce the laws against fraud by Wall Street executives, that the refusal to investigate and enforce the law was a deliberate policy choice by President Obama, and that policy was intentionally put into practice by Attorney General Eric Holder and the head of the DOJ Criminal Division, Lanny Breuer. Others show their biases as well.

John Tamny, writing for Steve Forbes’ rag, tells us that S&P was a bunch of second raters, and if the big Wall Street players couldn’t see the coming market crash no one should expect the “financial equivalent of the last player picked for a pickup basketball game” to catch it. Funny, yes, accurate, no. Tamny uses John Paulson’s massive bet against the market as proof that the big boys were ignorant. That’s just false. I discussed the SEC suit against Goldman Sachs here. Paulson and Goldman Sachs were not wild-eyed speculators, they were consciously selling garbage to unsuspecting small banks. In fact, Goldman Sachs made $3.7 billion shorting CDOs just before the Great Crash. The S&P complaint says that the big Wall Street players knew the crash was coming, and they were desperate to get the garbage off their books. The complaint says that S&P knew that, and still they continued to use the same rating system instead of one they had that was more accurate. Forbes isn’t going to let the facts get in the way of a good story.

The Wall Street Journal Op-Ed page explains that the S&P suit is a result of failed regulation and revenge. The evil feds regulated the ratings agencies and “ forced investors to rely on them”. That, of course, is nonsense. There is a rule that some financial institutions, including credit unions, can’t invest in securities that receive low ratings. That rule assumes that the ratings agencies are doing their jobs. If they don’t, they can and do cause enormous losses, and they should be sued.

And look, they say, Moody’s wasn’t sued, and they were just as bad. The decision to end the Moody’s investigation, if that happened, was made at the time S&P downgraded the US. And, get this:

… that’s also coincidentally when White House Chief of Staff Jack Lew was aggressively promoting the President’s campaign to prevent entitlement reform. Mr. Lew had worked in the heart of Citigroup’s subprime investment factory, and the President has not only been willing to forgive and forget. He’s even nominated Mr. Lew to become Secretary of the Treasury. But the company that put a shot across the Beltway bow over deficit spending is now the only target of a credit-ratings prosecution.

Those pesky facts again: Obama and the rest of his minions were perfectly willing to slash Social Security, Medicare and Medicaid to achieve his Grand Bargain, and that’s still on the table. The Wall Street Journal: once a valuable source of business reporting, now the print version of Fox News.

One more example from Red State’s Ed Morrisey, who managed to read a story from Bloomberg on the lawsuit. Bloomberg points out that the complaint says that Citibank and Bank of America are both the underwriters and purchasers of some of the overrated securities listed in the complaint. On its face this does seem odd. But recall that the investment banking arms of the company aren’t the same as the commercial banking group. Another Bloomberg writer, Jody Shenn, has an explanation. The suit is brought under FIRREA, the statute passed in the wake of the S&L disaster of the late 1980s in recognition of the fact that insiders at banks used their control to benefit themselves at the expense of shareholders and at the expense of federal insurance programs and taxpayers. The CEO of Citi testified to Congress that he didn’t know that the ratings system was corrupt. I imagine that this is true, and some employees of the bank were dumping the bad deals on the bank to enrich themselves.

Well, we all have our biases, don’t we, but that doesn’t mean we can’t agree on some things. I too want to know why Moody’s and Fitch weren’t sued. And why no one was indicted for fraud.

Photo by Funky Tee under Creative Commons license