Although it's late to the game, the Justice Department deserves polite applause for taking the credit-rating agency Standard & Poor's to task with a civil complaint against it and its parent, McGraw-Hill Cos. S&P is one of three major credit-rating firms whose faulty predictions lulled investors into thinking exotic mortgage-backed securities were a good bet. As it turned out, they were such a lousy bet that they helped bring on the 2008 crash that still has the country gasping for air.
The problem started with greedy lenders who, egged on by Wall Street, falsified documents so that unqualified home buyers could get mortgages they would never be able to pay back. Those booby-trapped mortgages were then bundled into mortgage-backed securities and sold to investors, such as retirement funds, with the blessings of the credit-rating agencies. Eventually, large numbers of unqualified buyers defaulted on their mortgages, and the investors who had been reassured by high credit ratings were left to choke on dust as the financial system cratered.