Standard and Poor’s has a bad track record in rating securities. Sometimes they even screw up on basic math, as they did with their $2 trillion error in downgrading US debt. They apparently don’t want anyone to know about that.
Standard & Poor’s, whose unprecedented downgrade of U.S. debt triggered a worldwide stocks sell-off, is pushing back against a U.S. government proposal that would require credit raters to disclose “significant errors” in how they calculate their ratings.
S&P, which was accused by the Obama administration of making an error in its calculations leading to Friday’s downgrade, raised concern about the proposed new corrections policy and other issues in an 84-page letter to the Securities and Exchange Commission, dated August 8.
The SEC is weighing sweeping new rules designed to improve the quality of ratings after their poor performance in the financial crisis.
The 517-page proposal includes a requirement that ratings agencies post on their websites when a “significant error” is identified in their methodology for a credit rating action.
The timeline here is kind of brilliant. The SEC posts its rating agency rules. In the midst of this, S&P downgrades the US, making a huge math error in the process. One of the SEC rules is that math errors and others like it must be disclosed. Then S&P writes to the SEC, asking them to get rid of that rule.
Open Secrets estimates that the rating agencies have spent over $1 million lobbying for changes to the relatively weak rating agency regulations in Dodd-Frank. As Jeffrey Manns writes, it’s hard not to see the downgrade as part of that process:
The credit rating agencies are taking advantage of the country’s financial problems to increase their own political power. They want to ensure that regulators do not reduce their autonomy and influence.
Their strategy is brilliant. They are not piling on all at once by downgrading the United States in concert. Standard & Poor’s is the bad cop for now, taking the first swipe at the United States last Friday, and seeing its influence confirmed by the stock market’s dramatic reaction. Moody’s and Fitch are playing the good cop — exercising restraint about a potential downgrade, yet still flexing their muscles by criticizing the government both publicly and behind the scenes.
The rating agencies have the federal government over a barrel. If politicians ignore rating agencies’ warnings, they risk a withering assault of additional downgrades that could undercut confidence in the government and inflict soaring interest rates. The good-cop, bad-cop routine is especially potent because a downgrade by two of the three major rating agencies could lead to negative consequences, such as requiring some bond issuers to secure additional collateral.
Remember that there is a pending SEC study in Dodd-Frank to design an independent organization that would select the securities the agencies would rate, abandoning the issuer-pays model (this is Al Franken’s amendment). There was also a part of the law that would have allowed investors to sue rating agencies for inaccurate ratings. The study has so far not been conducted, and the civil liability rule abandoned.
The Senate Banking Committee claims to be gathering information on S&P, but as Manns says this is an industry-wide phenomenon. Long ago, the government gave the rating agencies a good deal of power, and now they’re using it to protect their core business. I’d love to see Congress defy the rating agencies and reduce their role in bond deals (through mandating AAA securities in them), but I don’t see it happening.
But if the notion that S&P leaked the rating information early, which Charlie Gasparino has now picked up, gains traction, then all bets are off.




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Just one more brilliant piece of analysis from David Dayen.
Thnx–I just sent this around to others.
sorry OT
Dylan Ratigan on Mike Malloy tonite
Congress is not ever going to defy the rating agencies. Just ain’t gonna happen. Nice pipedream but wholly unrealistic.
Piss on these guys, and the many more in the market who share their corruption. Nothing important happens in the markets without somebody front-running it with inside info. I live in the S&P futures trading arena, and traded stocks for over 20 years, and the price action always precedes the news. These guys should all be in jail. How anyone gives them any power or cred after their fraudulent rating of the mortgage-backed securities is mind-boggling. And infuriating.
Economic Warfare
Who do the Ratings Agencies work for? Oligarchical Bankers
What do they want to do to Democracy in America? KILL IT DEAD!
Who the hell financed Fascism 1.0? Oligarchs that were never tried at Nuremberg for Crimes Against Humanity.
They’reee Baaaaaackkkkk! They’re hoping the kids won’t recognize them this time. After all, they’ve been waiting a long, long time for a whole generation with a certain experience to die.
http://www.youtube.com/watch?v=O3JTPzW3xmg&feature=related
Government offers help to the economy to prop it up in a crash. After that we expect business to take off and do it’s thing. But, this time business sat on money and refused to do much. They want their palms greased first. Take for instance the recent talk about an infrastructure bank and a public-private partnership to get things done. The Republicans and business insiders just see this as government setting them up to do a huge bubble. I heard that directly from a broker. Why on earth should government stick its neck out any further or go in debt further when these businesses won’t do anything long-term for the economy and they have the Republicans to protect them from higher taxes? Why should government lift a finger for such people?
Sure, we need the infrastructure work to be done and it would be good for people to have work and income, but don’t expect it to be an easy win-win situation or the beginning of a huge up-turn for the economy. These business people want a sure profit with no risk and if they can create a bubble, so they ‘profit’ hugely, then they’ll do it. Long-term investment & hiring? Fuggedaboutit.
It’s a lot like the Republicans saying government doesn’t work and then getting in power to screw up things and prove it. Here they’re saying government can’t do anything and unless they get bribed (in a sense) they sit there waiting — like a frog waiting for a fly to land on his tongue.
I’d be shocked if Congressional Democrats could be restrained from doing infrastructure things. They have to get re-elected. But, it puts them in a followership position behind Republicans who will propose things and get Democrats to accept their “leadership”. Republicans are like the businesses, they want good things to happen, but only if they profit from it and not their fellow competitors.
Fortunately, in the case of infrastructure there will be some good things which come from it. Unfortunately, Republicans will get to decide where the works happen if it’s a traditional piece of legislation — pork. Democrats need to ensure it doesn’t work that way.
Takes us back to the bigger issue of righting the country. One small step with infrastructure spending is nice, but not the full solution. The bigger solution is that wealth-holders should not be allowed to sit on it so easily. There should be a rather large cost which makes investment in real activities as appealing. Similarly, companies making profits overseas should not be allowed to sit on it and not have it taxed or put back to work.
Read “The Nazi Hydra in America” if you haven’t confirms pretty much your line of thinking. My 2 cents.
There is one thing that FDLers in general fail to appreciate: the very basic fact that the junkier US bonds become, the higher the spreads, the higher the spreads, the higher the fees. The daily bond market volume is upwards of a trillion dollars. Wall Street will be able to generate far more in fees from junky bonds.
I’m not presenting this as the only issue in play, but it is as important as any. And, and, and, it is very very very well understood on Wall Street.
Here is an analogy. If you had a car dealership that sold only new AAA brand new Subarus, you would make a small profit on each car. But if you could maintain the same turnover in inventory yet have all the cars be used B Subarus, you would easily DOUBLE your profit. Why? Because the difference between what you have to pay for a used car and what you can sell it for would be much greater. Ask any car salesman.
Like I say, this is very well understood by all the people who trade these bonds every day. And it is very well understood by S&P. Wall Street has drained real estate. In order to drain the rest, bigger spreads will help greatly.
lol. I was just watching Bill Black on Real News from Feb. http://www.youtube.com/watch?v=bkNezph6qGk Nobody better for explaining Wall Street fraud.
thanks for the link.
Well it is Amerika, the beacon of greed and war.
Of course this happens. Now how much “damage” was done by this “down grade”??? Anyone know a money amount? I do not know. But I’m sure it was significant.
If the “Ts” had attacked and caused this much damage, especially financial damage, to Amerika, is there any doubt we would invade that country and murder their people?
Any chance we can declare S&P as a separate country?
There is only one answer YUP!
this action by S&P is the result of Obama’s game of riding the tiger,,,he had the banks and the credit agencies on their knees and he blew it…to find more read Charlie G’s book, “Bought and Paid for” and you will really get pissed off
Is anyone talking about suing S & P, in order to do some discovery on their communications with partisan players, and their balance sheet?? They could be mired and essentially neutered by litigation, if not proven to be totally in the pocket of the Cock Bros.
Dean Baker had something to say about the Franken Amendment in a FDL Book Salon:
btw, Book Salon Guest was Michael Hudson, the reporter who broke the story on how S&P decimated the Georgia Fair Lending Act – damn, I love this place
18 U.S.C. § 371—Conspiracy to Defraud the United States
The general conspiracy statute, 18 U.S.C. § 371, creates an offense [i]f two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose… In Hammerschmidt, Chief Justice Taft, defined “defraud” as follows: “To conspire to defraud the United States means primarily to cheat the Government out of property or money, but it also means to interfere with or obstruct one of its lawful governmental functions by deceit, craft or trickery, or at least by means that are dishonest.”
http://www.justice.gov/usao/eousa/foia_reading_room/usam/title9/crm00923.htm
Geez, n here I thought I was reading at FDL and other places that S&P downgraded USA as pressure to ensure they would not be held responsible for them as of yet STILL unmarked to market useless derivative mortgages that were bundled and rated Trip A . . . .
Hell of a diary and comments . . . Mr. Dayen yer a renaissance man, a master of so many subjects . . . thank you for your work.
Past behavior predicts future behavior. And seeing how far S&P went in Georgia, and how well it worked for them in preventing proper regulatory legislation in other states, I would say that Dayen’s theory is right on the mark.
I got to this blog from Facebook (one of my friends posted it). After reading, I of course clicked Like then shared it myseld. More power.
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Some have been circling in for a US downgrade for the past 12+ years. Just think how much sh!t has gone downd under the radar and cover of lost lives, time and trillions in the planning of Iraq and Afghan–and during the actual fake wars there. The Russians tried and failed in Afghan before we went in. Did Pentagon boys think we could do it better 3000 miles farther away? Look deeply at the manufactured foreclosure sh!t. The DOJ really need to look into the S & P boys much, much deeper. They need to look into Goldman connections and US bond revenue recipts overseas. Anyone or any institution benefiting from our fake wars or our “debt” crises downturn are suspect. Follow the money backwards and all the way up the line.
Perhaps tax the dividends made from any American “misfortune” at 90%. Panama needs to allow the IRS access to American bank account info as the Swiss have. Lots of really nice real estate being built in Panama. Some Al Capone-type corporation and individual tax evaders wire money out of the country–stolen from the IRS and our infrastructure fund. How many years in the big house do they get for theft? All politicians world-wide and anyone inheriting from them should have any and all bank accounts posted on the web during all years of service and for 20 years after.
I don’t see this as payback – I see it as their normal SOS mode of business.
I haven’t time to quote Teddy Roosevelt’s diary about a wall street crises in 1907 – what TR wrote is NOT any different than the bullshit wall street pulled in 2008.
I have zilch experience such as yours, but, isn’t it obvious that they all belong in fucking jail.
(My uncle and I bought way out of the money S&P 500 LEAP Puts during the 90′s – we got sick of losing $500 a year so we didn’t buy in 2000 … idiots. )
rmm.
S & P is paid by the issuers of securities, and it gives them a good rating. The U.S. govt should pay S & P. Simple. The Obama administration has a proven track record as a very slow learner.
Spam @ 19