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Cows on Wall Street: Why the Latest Suit Against the Rating Agencies Matters

Standard & Poor’s in New York
Standard & Poor’s in New YorkPhotograph by Justin Lane/EPA via Corbis

If the deal-structuring cows are back, that can mean only one thing: another lawsuit against the rating agencies. Repetitive as this may sound, this suit matters. Here are answers to four key questions:

1. Cows? In one of the most notorious e-mails to emerge from the 2008 financial crisis, a Standard & Poor’s analyst told a co-worker that investments could be “structured by cows” and still get rated—and rated favorably. The cows e-mail has been cited on numerous occasions as evidence of S&P’s laxity, if not its allegedly fraudulent “AAA” rubber-stamping of dubious mortgage-backed securities. These were the securities whose implosion helped set off the crisis and a near-depression. Now the cows are back in a fresh suit filed Nov. 11 in state court in Manhattan against McGraw Hill Financial’s S&P unit, Moody’s, and Fitch Group. The plaintiffs this time are the liquidators of two defunct Bear Stearns hedge funds. The liquidators accused the Big Three rating agencies of issuing ratings they knew were bogus.