Imagine a world series which was fixed. Not by the players  ("say it ain't so, Joe") but- much more efficiently-  by the umpires.

Which is what was happening in the run up to the Financial Crisis.

That's the conclusion to be drawn from the $1.5 Billion Standard& Poor's settlement.

Back to and including Adam Smith economists have known and taught that  business executives are so unlikely to tell the truth, the whole truth and nothing etc.that there had to be some independent expert checking on them. So companies have to have their annual financial statements reviewed and approved (or criticized ) by  independent auditors.(To  persuade us to trust the financial statements  which they have approved , auditors dress like Herbert  Hoover ,express themselves in constipated clauses and generally look like Very  Serious People). 

To have someone watching the watchmen the SEC .issues rulings from time to time prescribing how  auditors rule in the case of certain ambiguous situations.

That might seem like enough review of the reviewers to guarantee that a company that announces a million dollar profit , had first actually earned a million dollars..And mostly no other arbitrator is needed

.With one major exception.

When companies attempt to get money  by selling shares or issuing bonds ,not only must they publish financial statement which have been approved by auditors acting under the gimlet stare of the SEC. In addition a  "rating agency" must review the Propag..........Prospectus  which supposedly allows Alan Investor to make a rational decision as to whether he wants to buy those shares or bonds.

So now comes on to the scene Standard & Poors -mostly- or perhaps Moodys' or Fitch.And it gives a sort of  Goodhousekeeping Seal of Approval ,in the form of a "rating" which could be anything as good as AAA  or as bad as C. An AAA. or AA or just A means that those smart folks at S&P have really looked at all the information in the Prospectus ,believe it is believable and you could advise  great aunt Nellie to buy some.

Or alternately  S&P's  "Rating" could be BBB -it's not a sure thing but there's a chance you'// get your money back. Or going down to a B (why should you?)or even worse some sort of C (kiss your investment goodbye).

Ok with that explanation of who does what to whom now we learn that S&P is going to pay a $billion and a half because some of those "ratings" were lies.

Ten minutes ago we recalled that Adam Smith said you can't trust Bob Businessman to always tell the truth. . And because of that some very straightlaced  people like Audrey Auditor looks over the shoulders of Bob Businessman and "certifies" whether the day-in- , day out results are really believable. And finally comes Standard & Poors and assigns a rating on  a Spectrum from AAA ( a sure thing) down to B(boy you like to take chances)or even C (kiss that investment good bye).

And now that "final reviewer" S&P is going to pay a $Billion and a half) because its ratings were wrong: deliberate lies that helped sell C type "junk" bonds as if they were A quality.. .

Strike three.