The nation's largest public pension fund has filed suit in California state court in connection with $1 billion in losses that it says were caused by "wildly inaccurate" credit ratings from the three leading ratings agencies.... The lawsuit, filed late last week in California Superior Court in San Francisco, is focused on a form of debt called structured investment vehicles, highly complex packages of securities made up of a variety of assets, including subprime mortgages. Calpers bought $1.3 billion of them in 2006; they collapsed in 2007 and 2008. Calpers maintains that in giving these packages of securities the agencies' highest credit rating, the three top ratings agencies -- Moody's Investors Service, Standard & Poor's and Fitch -- "made negligent misrepresentation" to the pension fund, which provides retirement benefits to 1.6 million public employees in California. The AAA ratings given by the agencies "proved to be wildly inaccurate and unreasonably high," according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities "were seriously flawed in conception and incompetently applied."
Calpers maintains that in giving these packages of securities the agencies' highest credit rating, the three top ratings agencies -- Moody's Investors Service, Standard & Poor's and Fitch -- "made negligent misrepresentation" to the pension fund, which provides retirement benefits to 1.6 million public employees in California.
The AAA ratings given by the agencies "proved to be wildly inaccurate and unreasonably high," according to the suit, which also said that the methods used by the rating agencies to assess these packages of securities "were seriously flawed in conception and incompetently applied."
The Big Picture: Calpers: Rating Agencies to Blame for Huge Losses
The goal of the litigation (as I see it) isn't to make the rating agencies pay a financial penalty; rather, it is to publicly try them just as the regulatory rules are being rewritten. I also predict that CALPERS is going to attempt to not just win, but humiliate these agencies, call them out in the most embarrassing way possible, trash the senior executives, and make things very uncomfortable in general for these firms. They don't want them to merely suffer -- they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.
They don't want them to merely suffer -- they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.
If the second is true there is no reason why Calpers could sue them, and if the first is true they should be sued into obliviion by the entire world for enabling the blasting of a $13 trillion hole in the fabric of the universe. Peak oil is not an energy crisis. It is a liquid fuel crisis.
The ratings agencies claim that their ratings are only advisory.
Flawed Credit Ratings Reap Profits as Regulators Fail (Update1) - Bloomberg.com
S&P included a standard disclaimer with Lehman's ratings: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision."... "They're saying we know you're going to rely on us and if you get screwed, you're on your own because our lawyers have told us to put this paragraph in here," he says. The companies have defended their ratings from lawsuits, arguing that they were just opinions, protected by the free speech guarantees of the First Amendment to the U.S. Constitution.
S&P included a standard disclaimer with Lehman's ratings: "Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision."
...
"They're saying we know you're going to rely on us and if you get screwed, you're on your own because our lawyers have told us to put this paragraph in here," he says.
The companies have defended their ratings from lawsuits, arguing that they were just opinions, protected by the free speech guarantees of the First Amendment to the U.S. Constitution.
That's just another way of saying "precisely everything we do is utter BS, please just ignore us". Peak oil is not an energy crisis. It is a liquid fuel crisis.
