Feds Sue Over Financial Crisis
BLITZER: It's the giant credit rating agencies, Standard & Poor's, and it's now in the news. The credit rating agency certainly has had some problems lately, but the U.S. government now says it should pay, pay for its part in the financial crisis of 2008. A government lawsuit accusing S&P; of giving misleading advice in the weeks and months leading up to the collapse. CNN's Lisa Sylvester is working the story for us. Lisa, give us some background. What's going on with this lawsuit?</s>LISA SYLVESTER, CNN ANCHOR: Hi there, Wolf. Well, $5 billion. That is the amount the Justice Department wants Standard & Poor's and its parent company, McGraw Hill, to pay up. The Justice Department accuses S&P; of a scheme to defraud investors. A scheme that hurt pension funds, 401(k)s and helped bring about the collapse of the housing market.</s>SYLVESTER (voice-over): 2004, home values were shooting up and getting a loan from a bank was easy. No money down loans, interest only loans, no prove of income loans. Wall Street was packaging up tens of thousands of these mortgages and selling them as investments. Who bought them? Private investors, pension funds, and 401(k) managers. The credit rating agencies have raided many of these mortgage related investments, AAA, The Justice Department now says many of these portfolios were actually super risky, and one by one, those folks who bought more than they could afford went into foreclosures. The investments started to go bad. Now who is to blame? The U.S. Attorney General's Office says, among others, the Standard & Poor's rating service. One of the nation's main credit rating agencies.</s>TONY WEST, ACTING ASSOCIATE ATTORNEY GENERAL: It's sort of like buying sausage from your favorite butcher, and he assures you that the sausage was made fresh that morning and is safe. What he doesn't tell you, what he doesn't tell you is that it was made with meat he knows is rotten and plans to throw out later that night.</s>SYLVESTER: S&P; says these claims that it deliberately kept ratings high are not true. Quote, "S&P; has always been committed to serving the interest of investors and all market participants by providing independent opinions on credit worthiness based on available information. Unfortunately S&P;, like everyone else, did not predict the speed and severity of the coming crisis and how credit quality would ultimately be affected.</s>SYLVESTER: And the Justice Department says the rating agencies had a conflict of interest because the people paying them were the investment banks, the very banks that were selling these securities. The Attorney General's Office won't say, though, if it's looking at the other two credit rating agencies, Moody's and Fitch -- Wolf.</s>BLITZER: All right. Lisa, thank you. And Delaware's attorney general, Beau Biden, is joining us right now. You like what the Justice Department is doing?</s>BEAU BIDEN (D), DELAWARE ATTORNEY GENERAL: Very much. I think what Tony West, the associate attorney general, as well as the attorney general, Eric Holder, did today along with 12 other states, one of which is my state, Delaware. Very important step to accountability in the whole mortgage finance meltdown that happened in this country.</s>BLITZER: Why has it taken so long? This is five years after. We were in a near depression, whole economic meltdown. What's -- why has it taken so long?</s>BIDEN: No, it's another step. You know, last -- the last two years we spent a lot of time going after the robo-signing scandal which resulted in a $25 billion settlement. Holding five of the biggest banks and their servicing arms accountable for the robo- signing scandal. This is the step to that. S&P; is being held accountable for really, you know, telling the American people one thing and telling its investors one thing but knowing the facts were different. You know, they lost their objectivity and their independence. They didn't even follow their own rules. And that's what these complaints we found said today.</s>BLITZER: They issued a statement, in fact, saying the lawsuit is entirely without factual or legal merit. They say, look, you're going to forecast business, you make mistakes, but there was no deliberate effort to mislead the American people.</s>BIDEN: It -- it's worse. They didn't even follow their own rules and maintain their own independence and objectivity. It's kind of like if you have, you know, sausage at the deli and you're trying to sell it. And you tell everybody, the consumer coming in, that the sausage is fresh but you know full well that the inside of that sausage is rotten meat. That's essentially what they did not just to the consumer but to their investors. The investing public that rely on that. Look, the reason we're such a great country is because our markets have credibility and honesty and what S&P; has done is kind calling into question that honesty and credibility. And that's why you see the U.S. Department of Justice filed the suit it filed today as well as a dozen -- dozen other attorneys general.</s>BLITZER: Their whole business, though, is based on their credibility, their reputation. Why would they deliberately want be to mislead investors?</s>BIDEN: Very simple fact. And you know this having covered it. A conflict of interest. If they tell their investors of the facts sometimes, they know they might not get business from their investor. If they actually rate something to what it really is, the reality is that investor might not come back to them and ask them to do another rating. So they sometimes -- it appears from my perspective at least and the complaint we filed today, they gave their clients, they gave the investing -- the people that paid them their income, their money, the answer that they wanted to hear. Because if they told them the truth, they might lose business and lose market share. That's the inherent conflict of interest that exists in this space of the ratings agency.</s>BLITZER: And --</s>BIDEN: Specifically</s>S&P.; BLITZER: Now how much money do you hope to collect from the S&P;? Because there's a report in the "Wall Street Journal," $1 billion.</s>BIDEN: Well, I think Tony West said today, the associate general, talked in the multiple billions. There's a dozen states that filing complaints. This isn't just about the money, though, it's about transparency and accountability and telling the American people what happened -- what happened to the economy. And this is central to what happened to the economy.</s>BLITZER: If you get the money, where does it go?</s>BIDEN: Goes -- for our state it will go to the Consumer Protection Fund to make sure that things like this don't happen and we can investigate things like this that have happened.</s>BLITZER: Do you -- do you distribute it to those people who lost money in the housing industry or whatever?</s>BIDEN: Well, the federal government might have some capacity to be able to do that. Ours will go to a consumer protection fund to help the consumer ultimately down the road. You know, any time the -- the other side, S&P; has hired a really wonderful, one of the preeminent First Amendment lawyers in the country, Floyd Abrams, among others, and any time you have to hire a First Amendment specialist, you know your defense is not that strong. And, you know, my colleague in Illinois and my colleague in Connecticut, two leaders on this, have gotten beyond motions to dismiss. They've already filed these cases over the last 24 months and I feel good about the types of cases we've brought at the state as well as the federal level.</s>BLITZER: Are more cases down the road -- I know you didn't include Moody's, you didn't include Fitch. Are more cases down the road?</s>BIDEN: I can't comment on what the U.S. government is doing. But I can -- we're going to look at all aspects to this. And so I'm interested in all the ratings and analytics and when it's had some of these things.</s>BLITZER: That sounds like a potentially -- like a yes?</s>BIDEN: Well, I -- look, we're looking at the whole -- the whole -- the whole ratings piece of this. And S&P;, who's we filed against today, and I'm going to look at the entire -- the entire spectrum of rating's agencies.</s>BLITZER: Beau Biden, the attorney general of Delaware, thanks very much for coming in.</s>BIDEN: Thanks, Wolf. Thanks for having me.</s>BLITZER: President Obama losing his voice. We're going to explain. 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