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Taibbi writes: "This is straight out of Animal House. It's the Wall Street version of, 'You fucked up - you trusted us!'"

People walk past Standard and Poor's. (photo: Justin Lane/EPA)
People walk past Standard and Poor's. (photo: Justin Lane/EPA)


"You F'd Up, You Trusted Us"

By Matt Taibbi, Rolling Stone

22 June 13

 

hat was among the responses of a spokesperson for the ratings agency Standard & Poor's when I contacted him a few weeks ago in advance of a new Rolling Stone feature, "The Last Mystery of the Financial Crisis," which describes the role the ratings agencies played in causing the 2008 crash. The company was genuinely miffed that anyone would impugn its honesty. In one relatively brief e-mail, the spokesperson used variables of terms like "independent," "integrity" and "transparent," upwards of nine times.

Hold that thought.

"The Last Mystery of the Financial Crisis" makes great use of documents uncovered in years of painstaking research by attorneys at Robbins Geller Rudman & Dowd, a San Diego-based firm that was at the forefront of major lawsuits against the industry. The material those lawyers found leaves virtually no doubt that the great ratings agencies like Moody's and S&P essentially put their analysis up for sale in the years leading up to the crash.

I picked some of the more damaging of these documents to ask about. Like for instance, an email from a company executive reading, "Lord help our fucking scam. . . . This has to be the stupidest place I have worked at."

Out of context, they said.

What about other highly suggestive emails, like the one in which an analyst joked that "we have just stuck our preverbal [sic] finger in the air!!", or the one in which an analyst admitted his quantitative model was only marginally more reliable than "flipping a coin"?

Not only cherry-picked and out of context, but "contradicted by other evidence," is how the S&P man put it.

"They do not reflect our culture, integrity or how we do business," he said. Note the word integrity again.

I point this out because the ratings agencies' responses to the questions we posed for the piece were almost as revealing as the extremely damaging emails and internal documents the Robbins Geller lawyers uncovered.

It wasn't just that there was apparently an entire generation of internal email correspondence that had been taken out of context (apparently, the context was taken out of context). More interesting was another line of defense.

Not long before I contacted them, S&P had made, in a very graphic and comical manner, a very strange argument in court. In an attempt to dismiss a federal Justice Department lawsuit pending against S&P, the company had, in a court motion, cited a Florida court case, Boca Raton Firefighters and Police Pension Fund v. Bahash.

In that case, the Second Circuit ruled that the plaintiffs suing S&P could not make a fraud claim based upon the company's reassurances in its Code of Conduct of its "objectivity, integrity and independence."

Moreover, the Court said, plaintiffs could not make a claim based on a public statement by S&P touting its "credibility and reliability," or another saying, "[S&P] has a longstanding commitment to ensuring that any potential conflicts of interest do not compromise its analytical independence."

Why, you might ask, could one not make a fraud claim based upon those statements? Because, the Second Circuit ruled, those statements were transparently not meant to be taken seriously. The following passage is a summary written by S&P's own lawyers describing the Second Circuit ruling (emphasis mine):

The Second Circuit affirmed the district court's dismissal of the plaintiffs' claims in their entirety, finding that the statements concerning the "integrity and credibility and the objectivity of S&P's credit ratings" were exactly "the type of mere 'puffery' that we have previously held not to be actionable."

More from that same memo from S&P's lawyers:

The Court found . . . that "generalizations about [S&P's] business practices and integrity" were "so generalized that a reasonable investor would not depend on [those statements]. . . "

Because S&P's statements about its objectivity, independence and integrity are the sort of vague, general statements that courts both within and outside this Circuit have found insufficient to support a fraud action, the Government's first "alleged scheme to defraud" fails.

Now, in response to my questions, the S&P spokesman made a series of arguments about the plaintiffs in the lawsuits in question. All of these points came down to the same idea: that these investors were big boys, and should have known better than to rely upon an S&P rating.

"Most of the plaintiffs were sophisticated institutional investors that did not actually rely on the ratings in making decisions," he wrote. These plaintiffs, he went on, were "large institutional investors with significant investment staffs of their own," and some of them, he pointed out, didn't cover themselves in glory with their background research.

One institutional investor, he wrote, "admitted that it did no more than look at the rating and the yield on a Bloomberg screen, spending no more than five minutes deciding to invest $50 million." All they did was look at our rating before investing! What idiots!

This is straight out of Animal House. It's the Wall Street version of, "You fucked up - you trusted us!"

I don't often get angered by the things press spokespeople say. Most of these people have difficult jobs and are often forced to be the public faces of policies they had nothing to do with creating.

But in this case, S&P just a few weeks before had sworn before a judge that its reassurances about objectivity, integrity and independence were not legally binding, vague, and so generalized as to be essentially meaningless.

Yet when I contacted this company, they sent me exactly, and I mean exactly, the same reassurances about objectivity, integrity, and independence that they themselves had laughed at as "mere puffery," "vague," and "so generalized that a reasonable investor would not depend" on them.

Then they went on to deride the plaintiffs in their lawsuit for not being smart enough to do their own research and make their own assessments about the meaning of an S&P rating, and the value of its reassurances of independence and integrity. Yet us reporters are apparently still expected to take such assurances at face value, which if my math is correct means that in their eyes, we must be even dumber than the investors in the products they rate. What a bunch of assholes!

Anyway, if you want the full lowdown on what actually goes on internally at these companies, check out the piece, which is full of the devastating material dug up by those San Diego lawyers.

Also, thanks so much to the excellent Chris Hayes at MSNBC, who had me on last night to discuss the issue. It was a very fun talk.


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+154 # MainStreetMentor 2013-06-22 10:32
In today's world, there are many investigative reporters who are outstandingly good at what they do. Matt Taibbi heads that list, and has become the standard within the journalism arena - following in the footsteps of Edward R. Murrow. His information is a journalistic gold mine. This article is no exception.
 
 
+9 # Walter J Smith 2013-06-23 19:31
Matt is good. So is Glenn Greenwald. So Dana Priest at the WaPo. There are several competent and good investigative reporters. Hopefully Matt isn't the only one you read.
 
 
+2 # Anarchist 23 2013-06-24 17:27
Look out, Matt, make sure your car is in good working condition! Investigative reporter is a dangerous job in the Stassi States.
 
 
+1 # adickinson 2013-06-25 00:12
Like you, I think that Michael Hastings was targeted and killed, but let's not bring him up to other great journalists. They know already, and we don't want to add to a climate of fear. We want a climate of courage. All of us need to be passing on the truth, sharing these good stories, talking to people about these articles. You go to the doctor, to the grocery store, to the hairdresser, talk to these people about Matt's latest article in Rolling Stone. Ask people if they know about Edward Snowden, Bradley Manning, and what they have done for us. Ask them if they watch Democracy Now! with Amy Goodman. Bring up these ideas, sources, events.
 
 
+53 # universlman 2013-06-22 10:37
Institutional investors not only trusted the ratings agencies, their payments to them and their cozy relationship with the investors created their "credibility" over the years. Now that their credibility is ruined, these agencies will not admit either accountability or defeat. They will pivot, like the credit reporting agencies did after the collapse of consumer credit into an obvious lucrative new direction: investor security. Think Lifelock.
 
 
+67 # angry 2013-06-22 11:14
Matt also understands the "why" of this... that politicians revel in campaign bribes from the industry and pass laws that make screwing the public all that easier. Repeal of the Glass-Stegall act is just one example.

This nation's #1 problem is that we've allowed politicians to set their own rules, and it's not been a pretty site. We need public funding of campaigns and term limits, among many. But the pols will not fix the system that benefits them so well, thus the voters must take matters in to their own hands.

We MUST demand political reform in 2014, or they must ALL be unelected!
 
 
+25 # chomper2 2013-06-22 13:05
I agree with you 100%, angry. I say never vote for an incumbent for legislative office, State or Federal. One term...that's all. We would at last get people running for those offices who see them as opportunities for service to their communities, rather than means for enhancing their own personal wealth. Plus, the lobbyists would disappear from K Street, no longer having any influence in reelecting their favorites. What a glorious day that would be!
 
 
+18 # Im Skeptical 2013-06-22 17:39
Quoting chomper2:
I agree with you 100%, angry. I say never vote for an incumbent for legislative office, State or Federal. One term...that's all. We would at last get people running for those offices who see them as opportunities for service to their communities, rather than means for enhancing their own personal wealth. Plus, the lobbyists would disappear from K Street, no longer having any influence in reelecting their favorites. What a glorious day that would be!


The problem is, with term limits the lobbyists have even MORE power because they are the only ones who remember what happened when. None of the politicians was present back then, so there is no institutional memory in the legislative branch. Term limits have not helped in California, for example. So we need public funding without term limits. Voting the bad politicians out is the best term limit there is, anyway.
 
 
+1 # chomper2 2013-06-22 23:26
I respectfully suggest that you may be wrong, Skeptical. Lobbyists will only spend on legislators who need that money to get reelected and are willing to sell their allegiance in order to get it. With no reelection possible, a legislator has no need for that money and no motivation to "sell" his/her allegiance to some corporate behemoth. As it is now, most legislators are the kind of people who see no problem with that. In a single-term system, only true public servants would run for office, and we would have a real citizen legislature as our founders envisioned. As for term limits not working in California, I say give it a little time. Yes, those legislative bodies will lose skilled politicians (crooks in most cases) to some relatively unskilled, but honest citizens. Wouldn't you rather have well-meaning amateurs make a few mistakes on your behalf than have a pack of crooks digging in your wallet for every last dollar?
 
 
+6 # angry 2013-06-23 06:22
The problem is the corruption created by seeking the second terms, though that would go away with public funding of campaigns. Except that we'd also have to cut off outside funding.

There is actually nothing wrong with "lobbying," as that is a good way to educate politicians. The problem is, NOW, they lobby with cash in hand, and get by with it because of demanding politicians. But I see the staffers becoming more dominate with such changes, and that's why the revolving door must be locked.
 
 
+6 # bingers 2013-06-23 07:36
I understand the feeling, but with only one termers what you would have is a bunch of amateurs who have no idea what they're doing, and as you can see from the Teabaggers in Congress that's a really bad idea.
 
 
-2 # angry 2013-06-23 09:59
With only one-termers the staff would garner the strength, providing we take the checkbook away from the lobbyists. But perhaps we could double terms if the economy was prosperous. (and incidentally, I'd keep the politicians away from writing those rules.)
 
 
+11 # Joe Bob 2013-06-22 17:32
"We are mad as hell and we are not going to take it anymore"
 
 
+12 # wantrealdemocracy 2013-06-22 19:03
Oh, Jow Bob, I hope you are correct but I see no sign of it in this nation of badly informed insouciant people. They are blithely indifferent as long as they have a job. When they get canned, as they will, it will be too late to do anything. The loss of our democracy will have been accomplished.
 
 
+50 # Rich Austin 2013-06-22 11:34
And Congress strums its nuts while working class people are being savaged. What a f* corporatist country we've allowed ourselves to become.
 
 
+13 # angry 2013-06-22 12:39
Don't blame this on corporations, blame it on our "esteemed" politicians that take campaign bribes from corporations and twist the laws to put cash in their pocket in return. You know, bribes!
 
 
+11 # brenda 2013-06-23 02:38
" Don't blame this on corporations, blame it on our "esteemed" politicians that take campaign bribes from corporations and twist the laws to put cash in their pocket in return. You know, bribes! "

"Don't blame this on Corporations"? Of coarse you jest. The mere fact that corporations are willing to bribe politicians, is enough to indite them on bribery charges. Just as the same politicians who accept bribes are just as guilty in this massive conspiracy and public deception. Jail time for the principals in both camps is well in order.
 
 
+8 # bingers 2013-06-23 07:38
Quoting angry:
Don't blame this on corporations, blame it on our "esteemed" politicians that take campaign bribes from corporations and twist the laws to put cash in their pocket in return. You know, bribes!


Nope, the politicians are certainly corrupt, but without the corporations offering the campaign bribes, there would be none of this. The corporations are more corrupt than the politicians and should be hammered with crippling fines for it.
 
 
+2 # angry 2013-06-23 14:20
The politicians could make this illegal overnight, but they won't!
 
 
0 # Brooklynite 2013-06-25 13:11
You've got it exactly backwards, Angry. A bribery transaction takes 2. A majority of US legislators and other government officials are prostitutes to the corporations. That means the root cause is the corporations. The only thing powerful enough to stop the corporations would be a government that recognizes that it is supposed to belong to the citizens of the country, not to the corporations.
 
 
0 # Brooklynite 2013-06-28 04:35
In other words blame only the bribe-takers and not those doing the bribing??
 
 
+6 # brenda 2013-06-23 02:31
"And Congress strums its nuts while working class people are being savaged. What a f* corporatist country we've allowed ourselves to become."

Here, here!
 
 
-69 # FDRva 2013-06-22 12:20
Matt Taibbi is a smart fellow.

Yet he bought into the intelligence community's Obama caper.

You know--the Obama who pledged to close Gitmo--and rein in the NSA? But forgot to.

Thanks, Matt.
 
 
-69 # FDRva 2013-06-22 12:36
I suspect many readers will not be relying on Matt's insights in the future.
 
 
-60 # FDRva 2013-06-22 12:57
Perhaps Matt Taibbi, as a voice of the White House, will tell us when his friends in the Obama White House plan to go nuclear as regards Syria?

And I remind Matt's friends that Russia also has many nuclear weapons.

Historically speaking only the USA has ever launched a nuclear weapon against another nation.
 
 
-27 # fredmac 2013-06-22 13:42
Matt: An enlightening article and I enjoy your writing with the exception of the use of stong, gutter language. Don't roll in the slop and then get mixed up as one of the slobs...good writing demands higher standards.

Keep up the "good" work.
 
 
+29 # tabonsell 2013-06-22 14:54
Obama sent a proposal to close Gitmo to Congress. It was Congress that turned down the proposal and kept Gitmo open. Financing would have had to come from the House. Guess who controls the house and holds enough of the Senate to make filibustering a way to prevent logical actions.

Laws pertaining to NSA's operation were rewritten following the criminal use of the agency by George W. Bush so that NSA is now operating according to law.
 
 
+26 # kalpal 2013-06-22 15:23
Who was it who instituted the mass searches of electronic communications? Was it one ofr your favorite scumbags, named GW Bush or maybe Dick Cheney and David Addington who all laughed at the notion that the oath of office means anything at all?
 
 
+18 # mdhome 2013-06-22 16:06
Obama has been BLOCKED from closing Gitmo by the GOP!
 
 
-8 # hoodwinkednomore 2013-06-23 14:50
Obama is a huge disappointment. At least with Romney we would have had revolution to shake this shit up. The people are f**ing losing ground EVERYWHERE and all Obama has to say is, stick with me--I got the nobel Peace prize and was elected twice. F*** him already. We need/ed a true leader!!!
 
 
+10 # bingers 2013-06-23 07:40
Quoting FDRva:
Matt Taibbi is a smart fellow.

Yet he bought into the intelligence community's Obama caper.

You know--the Obama who pledged to close Gitmo--and rein in the NSA? But forgot to.

Thanks, Matt.


He didn't forget to, the Republican obstructionists made it impossible for him to do it. Wake up, find the facts, realize that all our problems have been caused by the right and understand that the Republican party, every single right wing talk show and Faux News lie nearly 100% of the time.
 
 
+24 # tm7devils 2013-06-22 13:00
Where are the fucking whistleblowers when we need them? Is morality as dead as the dinosaurs?
When it comes to economics and financial matters our government, Wall Street, and the rich have gone down the rabbit hole.
 
 
+48 # reiverpacific 2013-06-22 13:07
FINALLY!
It's about time these rating "agencies" had their credibility destroyed by public exposure and ridicule.
And you can throw the credit bureaus like Trans America, Equifax and Co into the pile of shit called "Credit Ratings"; it's about time somebody investigated THEM in depth for their incompetence, inaccuracy and corruption, instead of beholding to them in their almost Deified status like lemmings, who can and do poison a person or business' reputation and very existence for years or forever, just 'cause they had a misfortune, bad luck or bankruptcy -more often than not caused by the stinkin', "Pay up or die" medical non-system in this winner-take-all country that calls itself"civilize d and a democracy.
 
 
+28 # coberly 2013-06-22 13:54
yep, the institutional investors are big boys and should have known better than to take the S&P ratings seriously.

That's for dumb people like you and me.

And it's why we are supposed to swoon when they downgrade the credit of the United States of America.
 
 
+24 # mdhome 2013-06-22 16:08
It is all rigged for the wealthy to get more wealthy, welcome to feudalism.
 
 
+29 # Doggone 2013-06-22 15:33
Hey Matt, I love your reporting and I don't mind one bit that you use strong language. I just worry 'bout you messing with the big boys. Stay alert! We need you, there are too few reporters willing to dissect this financial mess and tell the rest of us the truth in ways we can understand. BLESS YOU and THANK YOU!!
 
 
+22 # Trueblue Democrat 2013-06-22 15:56
". . . the Court said, plaintiffs could not make a claim based on a public statement by S&P touting its credibility and reliability . . ."

Yet, just this month didn't the Supremes call a farm organization's suit against Monsanto moot because Monsanto had pledged on its webpage to stop acting like the horse's ass that it is -- or words to that effect?
 
 
+21 # Harbinger 2013-06-22 16:33
You can imagine how that went over with the farm organization -- farmers knowing a horses ass when they see one. And seeing at least six on the Supreme Court bench.
 
 
+16 # socrates2 2013-06-22 17:55
Why the shock?
Some years back, John Perkins in his tell-all _Confessions of An Economic Hit Man_ 'fessed up how the bank establishment with the US's blessing screwed the international taxpaying community with one false promise after another.
For years journalist (of integrity) after journalist has warned us that weapons we use abroad eventually get used against US citizens. Well these _economic_ and financial "weapons" have been turned against us!
Quelle surprise!
 
 
+11 # CandH 2013-06-22 18:34
The big con: who is rating the debt of the EU countries? The ratings agencies, who are paid by the banks, who are getting the benefits of the 7, 10, 15% interest payments by these countries as a result of these sh*tty ratings. This is causing massive suffering of the populations as budgets are told to be cut (austerity) by the banks, AND interest payments soar to the banks.

So, if EU countries are rioting, why aren't are US cities/counties /states populations, who have the same ratings agencies rating THEIR debts "too risky," causing the same cutting (austerity) demanded by banks, and high interest payments caused by ratings agencies ratings, BY BANKS? The big con.
 
 
+10 # spenel334 2013-06-22 19:48
If we cannot rely on the ratings by the ratings agency, methinks each rater needs to be out of a job. Why do we need rating agencies whose ratings are totally unreliable, which we all know they are, and they themselves use as their excuse for not being able to be sued. Of course people have been saying for years that we need new rating agencies, obviously independent of the banks. Maybe the ratings agencies should be paid according to the reliability of their work. But Oh, what a bizarre thought!
 
 
+3 # bingers 2013-06-23 07:45
For another great source, read anything by Greg Palast. I don't know why he's not a regular contributor here. Maybe he charges?

But you can Google him and read his stuff. He gets deeper into it than Matt does, but he writes for the Guardian, not Rolling Stone.
 
 
+2 # ligonlaw 2013-06-23 00:34
So why would anyone rely on the S&P or Moody's ratings. The rating agencies have admitted that their work is completely unreliable and guess work. In order to be considered an "investment grade" security, most investment funds require an agency rating above BBB. If the investment grade rating means little or nothing, the investment funds and pension managers should look elsewhere for ratings. In everyday life, the investment grade is the gold standard. In court, the investment grade means little or nothing. In general, important matters should not be left to judges. They know not what they do.
 
 
0 # rbrooks 2013-06-23 08:19
You fucked up, you trusted us! It's an Obama tee shirt!
 
 
+6 # brux 2013-06-23 09:02
This is just part of the system to fuck over decent working Americans, because they can.

The only fair thing to do to make up for this is to have a REAL progressive tax and use it to pay back - everlastingly for the relentless class war that has been waged on Americans and that has turned them into slaves.

The stock market is like Vegas, the house eventually wins, and all the money Americans dump in there just bids prices up so the very rich can extract it over time while people think they are doing the right thing.

AMERICA - "It used to work" can be our new slogan.
And ... it never worked for all of us anyway, but collectively we just assumed that it would work for most of us so we dumped the native Americans, the blacks, the gays, the Asians, the poor, and over time the few people who made sure to screw over these minorities developed enough enemies that now just to survive they need to enslave the rest of us and declare war on the world. Screw this rigged unfair system!
 
 
+2 # Interested Observer 2013-06-23 09:49
Never give a sucker an even break. The same today, yesterday and forever.

(Swindlers 13:8)
 
 
+4 # hoodwinkednomore 2013-06-23 14:46
Take good care, Matt Taibbi. You know what just happened to one of your colleagues....T hese F**ing sick, greedy freaks will stop at nothing!
 
 
+2 # Walter J Smith 2013-06-23 19:27
"You F'd Up, You Trusted Us" That will be the response of the bipartisan majority who love, coddle, heap our tax money and our credit and our credibility upon the nazi regime we used to call Uncle Sam, and do so as fast as they can imagine how to. They may have other responses. But this is the only one that will matter, if it matters.
 

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