Robert Samuelson is worried that S&P is being persecuted by the Justice Department which is suing the company for mis-rating tens of billions of dollars of mortgage backed securites. He argues that S&P was suckered by the housing bubble just like everyone else.

While the claim that they believed that house prices could only rise is probably true (most economists and policy types believed this in the years 2002-2006 -- you don't get fired in economic policy work for making huge mistakes) that has little to do with the charges leveled by Justice Department. These charges claim that S&P changed its rating model in order to get more business. If S&P did not alter ratings to get business then the Justice Department will probably not get far with its case.

There is no inconsistency between the claim that actors in the financial industry both believed in the bubble and committed fraud, as Samuelson seems to think. In a rising housing market every mortgage is a good mortgage. Even if the borrower never makes a single payment, the lender ends up in possession of a home that has risen in value and can likely be resold to cover the cost of the mortgage. This could mean that lenders issue mortgages without proper underwriting (e.g. they make up information) because they know that there will be plenty of potential buyers for the mortgage. The investment banks go along with the hoax because everyone is making money. So do the rating agencies and the captive regulators. The fact that all of these people might be clueless about markets and the economy hardly precludes the possibility that they committed massive fraud.