The government’s 119-page civil lawsuit against credit rating agency Standard & Poor’s for allegedly inflating the ratings it gave to residential mortgage-related securities, or RMBS, in the run-up to the crash has removed whatever lingering doubts (there weren’t many!) might have remained about just how problematic the ratings game is. But it also raises a question: Why, in cases of white-collar wrongdoing, is it often the cogs in the wheel that seem to pay the highest price?
Last week, New York Attorney General Eric Schneiderman, who is the co-chairman of the Residential Mortgage-Backed Securities Working Group – which President Obama formed earlier this year to investigate who was responsible for the misconduct that led to the financial crisis – filed a complaint against JPMorgan Chase. The complaint, which seeks an unspecified amount in damages (but says that investors lost $22.5 billion), alleges widespread wrongdoing at Bear Stearns in the run-up to the financial crisis. JPMorgan Chase, of course, acquired Bear in 2008. Apparently, this is just the beginning of a Schneiderman onslaught. “We do expect this to be a matter of very significant liability, and there are others to come that will also reflect the same quantum of damages,” Schneiderman said in an interview with Bloomberg Television. “We’re looking at tens of billions of dollars, not just by one institution, but by quite a few.”