When investment banks insisted that their mathematical models more accurately valued securities than market prices, they were subjected to withering scorn from regulators, investors and pundits.
But in the Department of Justice's lawsuit against Standard & Poor's the complaint is just the opposite: S&P stands accused of paying too close attention to market signals and not being faithful enough to its models.
"S&P was so concerned with the possibility of losing market share and profits that it limited, adjusted and delayed updates to the ratings criteria and analytical models it used to assess the credit risks posed by RMBS and CDOs. According to the complaint, S&P weakened those criteria and models from what S&P's own analysts believed was necessary to make them more accurate," the Justice Department says in its press release about the law suit.
It's not clear why this should be considered a description of fraud. Imagine if instead of rating bonds S&P were in the business of making breakfast cereal.
"S&P was so concerned with the possibility of losing market share and profits that it limited, adjusted and delayed updates to the recipe for corn flakes. According to the complaint, S&P changed the recipe for its cornflakes and models from what S&P's own analysts believed was necessary to make them tastier."
Doesn't sound like fraud anymore, does it? Instead it sounds like a company doing what companies often do: listening to the market instead of their internal experts.