This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

The Five Dumbest Things on Wall Street This Week: Feb. 8

Stocks in this article: WYNNHLFHPQ

1. S&P Gets Popped

Better late than never, Holder.

U.S. Attorney General Eric Holder shocked the market -- and the 5 Dumbest Lab, too, to be honest -- when he charged Standard & Poor's Monday with knowingly inflating its ratings on the subprime mortgage bonds that helped cause the 2008 financial crisis. The Justice Department alleges the company's desire to bolster its sales "led S&P to downplay and disregard the true extent of the credit risks" posed by the crappy securities it was blessing with triple-A ratings.

Shares of S&P parent company McGraw Hill (MHP) have dropped 19% since the government announced its allegations. Moody's, which saw its shares get equally smacked, and Fitch were not charged, although we can safely assume Holder will eventually turn his attention to S&P's competitors at some point.

Come on, folks. It took the guy nearly half a decade to go after S&P for what he calls its "egregious" conduct. We can surely wait another few years for him to seek justice for the rest of the lot. Can't we?

S&P typically charged customers $150,000 to rate a subprime mortgage-backed security. If a member of its sales staff lost a lucrative deal to a competitor as a result of a poor rating, then that employee was forced to submit a "lost deal" memo to his or her superiors.

Of course, those salespeople -- we won't even bother to call them analysts because they were anything but -- won't be giving back their hefty bonuses for their so-called work during the credit bubble. And since this is a civil, not criminal, crusade, they have no chance of going to jail for their key roles in the country's financial collapse.

But the company's current shareholders are obviously paying dearly for S&P's prior misdeeds judging by the stock's reaction. And if acting Associate Attorney General Tony West gets his way, they will surely get hit again. West said Tuesday the company could be liable for $5 billion in penalties "at the very least."

For its part, S&P called Holder's lawsuit "meritless," despite a trove of emails clearly proving otherwise.

"The fact is that S&P's ratings were based on the same subprime mortgage data available to the rest of the market -- including U.S. government officials who in 2007 publicly stated that problems in the subprime market appeared to be contained," company spokeswoman Catherine Mathis said to Bloomberg.

Sing that tune all you want, Mathis, but chances are that defense is going to fail you.

Our government's on-the-spot ineptitude is time-honored. Nevertheless, so is its ability to eventually arrive at the right answer, with Holder's lawsuit being the consummate case in point.

Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
5 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,718.20 +40.30 0.24%
S&P 500 1,950.74 -0.08 -0.00%
NASDAQ 4,456.0710 +3.2790 0.07%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs