Lady Justice is famously blind, a scale in one hand, a double-edged sword in the other.
Nothing in the personification connotes efficiency. Nothing suggests she takes or gives satisfaction in her work.
So here we are with muted expectations, six to nine years after the alleged transgressions, finally seeing the Justice Department joining several states, including Illinois, in filing a civil suit against Standard & Poor's over its contribution to the housing-market crash.
At issue is the seal of approval it gave mortgage-related securities that turned out to be far riskier than the S&P rating suggested in the run-up to the financial crisis. Settlement talks broke down, reportedly millions of dollars apart and stuck on whether S&P would admit wrongdoing. A civil case requires a lower standard of proof of wrongdoing than a criminal prosecution.
The government is arguing the ratings firm defrauded federally insured banks and national credit unions to advance its own business interests, because it only made money when deals were sold, not if they were rejected. Standard & Poor's, a division of McGraw-Hill, countered in a statement that "claims that we deliberately kept ratings high when we knew they should be lower are simply not true."
What is undeniable is that the long wait for justice, whichever way it cuts in this case, has frustrated many stung by the economic downturn, though that speaks to the complexity of compiling the case the feds are trying to make. And history tells us whatever the resolution, it won't satisfy many more. Think Enron. Think Arthur Andersen, the onetime Chicago-based accounting giant sunk by reputational damage despite a verdict that was overturned.
These cases ultimately play like the federal investigations of plane crashes, and that — more than the business of vindictiveness or vindication — is the best rationale for going to court. They will never undo the damage, but they can send a resounding message to everyone else by identifying bad practices and structural defects, as well as who's to blame or exculpate.
Still there always will be those who argue someone was treated too harshly or let off too easily, especially when it comes to those connected to the financial crisis. We are not a nation that puts heads on sticks, but Wall Street is seen as having escaped largely unscathed. One reason may well be that pulling at that string threatens to unravel more than most would bargain for, making the stakes especially high.
"In the securities field, if you agree to being a knowing violator of SEC regulations, you risk losing your license," said David Ruder, a Northwestern University law professor who was chairman of the Securities and Exchange Commission in the late 1980s. "People say, 'How come they don't make Citi and Morgan Stanley admit they were wrong?' Well, does the SEC really want to revoke their licenses and put them out of business? Can't it find some lesser sanction?"
When Ruder was head of the SEC, the question was whether to go after Drexel Burnham Lambert and Michael Milken for market manipulation and insider trading in their junk bond business.
"They said, 'If you bring this case and put us out of business, the market will be gone,'" Ruder recalled by email. "We really had to deal with the question, whether their conduct was serious enough that we should risk putting them out of business. Then we had to ask ourselves: If we put them out of business, will the market tank? We came to the conclusion it would not. But we were very concerned with what the effects would be."
Even if there were no concerns about the effect on the larger economy, there's reason to proceed slowly. Like the financial dealings at the center of these cases, prosecution is risky. There is incentive on both sides to settle.
In another case, Royal Bank of Scotland Group is reportedly poised to announce a financially and reputationally expensive settlement with U.S. and British authorities related to allegations the bank tried to rig Libor, a benchmark for interest rates.
For S&P, the best-case scenario is it didn't know what it was doing, hardly a business booster. It also is expected to argue that its assessments of the safety of the risky investments should be protected by the First Amendment, much like a critical theater review that closes a play.
There are damning emails, like one from an analyst cited in the government suit who not only seemed to see the problems ahead, but set it to the tune of the Talking Heads' "Burning Down the House": "Watch out/ Housing market went softer/ Cooling down/ Strong market is now much weaker/ Subprime is boiling over/ Bringing down the house."
But if you went through all the emails of companies beyond reproach, you likely would find plenty of knuckleheads saying idiotic things that may or may not reflect the larger worldview of the employer.
Still, those never go over well.
"Standard & Poor's was a trigger for the destruction of our economy," Illinois Attorney General Lisa Madigan, who sued S&P 13 months earlier, said in a statement. "While the big banks and lenders built mortgage-backed bombs, it was S&P's faulty ratings that detonated them."
There were many factors that brought down the economy, and S&P's ratings were one, and now the case will be prosecuted as to whether it was deliberate. That is serious business with serious ramifications.
The thing about Lady Justice is that, besides being blindfolded and standing rock steady, she doesn't look very happy.
Twitter @phil_rosenthal
