Has S&P Become Our Rupert Murdoch?

Until recently, no one in the UK dared cross Rupert Murdoch thanks to his influence on the political process.And although Murdoch is going down the same path in the US, of using political power to increase his economic power, the rating agencies seem to have easily trumped him on this one.

Jane Hamsher chronicles the brazen way in which Standard & Poor’s is throwing its weight around in the budget negotiations:

Standard and Poors is evidently meeting with high-stakes gamblers and letting them know where to place their bets as they manipulate the global economy.

But they are also playing a much more sinister game. Like a cat toying with a mouse, they are also inserting themselves in the political process and setting themselves up to be kingmaker in the 2012 election.

An item in Politico’s Morning Money caught my eye:

BEHIND THE MUSIC – S&P’s John Chambers has met with a number of big investors include Pimco’s Mohammed El-Erian. Apparently he is telling them he prefers Reid’s plan.

CNN’s Erin Burnett also tweets that the “source who met with Standard and Poors says SIZE of Boehner plan is the problem.MIGHT not be enough to avert downgrade,needs to be closer to $3TR all at once.”

If these reports are correct, S&P is meeting privately with big investors and giving them information that they are not giving the public about about what their research says, what position they will take, and what they intend to do with regard to a potential credit downgrade of US debt.

This appears to be “selective disclosure” to big investors on the part of Standard and Poor’s. And while putting a $4 trillion number on a deficit reduction package might be in violation of the IOSCO code of conduct, “selective disclosure” is in violation of SEC rules.

f you read the consent order issued by the Massachusetts Securities Division in June of this year (PDF), that’s exactly the activity that got Goldman Sachs in trouble. Goldman was selectively giving information to “large institutional investors” that it did not make available to the public.

Prior to Dodd-Frank, credit ratings agencies were exempted from selective disclosure regulations. Dodd-Frank removed that exemption. S&P is now subject to the same laws that Goldman Sachs is.

But S&P’s activities have the potential to be much, much more sinister than Goldman Sachs’s

An issue that Hamsher noted in an earlier post is that ratings, per the industry’s code of conduct, which S&P has adopted, is that raging agencies are not to tell clients “if you do X, you’ll get Y rating.” The rating agencies allowed themselves plausible deniability in CDO land by making their models available so clients could fit their CDOs to how the agency would look at it. But what is happening here is explicit and unabashed. Back to Hamsher:

It’s not a coincidence that Timothy Geither met with Standard & Poor’s in April to lobby them heavily not to downgrade the US debt.

Nor is it a coincidence that RNC Chairman Rence Priebus was egging S&P on, tweeting that “It is alarming that the WH would encourage S&P to suppress a damaging fiscal report for Obama’s partisan speech.” Or that Darryl Issa is out there saying “we should be downgraded.” Everything in our current environment gets reduced to a battle for partisan political advantage.

S&P is coming in on the side of the Reid plan now, even though that plan appears to be indistinguishable from the Boehner plan in just about every meaningful way. But that plan does not meet the $4 trillion number they prescribed…. its inevitable failure will be used to justify S&P’s decision to downgrade, and it allows them to shrug and say “we weren’t playing politics, we supported the Democratic plan.”

But no matter what political stagecraft is orchestrated, there is a very serious chance that a ratings downgrade will trigger an economic downturn that would cause unemployment to rise dramatically….

I don’t care whether you’re rabidly pro- or anti-Obama, a Republican or a Democrat or an Independent or a Green or none of the above. What S&P and the other CRAs are doing right now is completely illegal and outside the boundaries of their own codes of conduct. They’re acting as Wall Street’s tasers in Shock Doctrine 2.0, and making themselves the key player in determining what happens not only with the 2012 election but with the world’s economic future. They are playing a very dangerous game with the world economy that could have devastating consequences for all of us, regardless of what your partisan identification is.

Hamsher notes in an update that S&P is now piously denying that it is supporting the Reed plan, but there are too many sighings otherwise to make this claim credible.

Hamsher calls S&P a “kingmaker” and this isn’t an exaggeration given the effect their actions are having. Either way, they will shoot the economy in the head. Either the negotiators come up with package that suits their demands, which will lead to steep enough cuts that the economy will weaken in 2012, making an Obama loss highly probable (fresh polls not only show his popularity falling, but independent voters now rate the Republicans as able to do a better job on the economy). And failure to reach a deal soon before Treasury runs into cash flow constraints and/or a downgrade is almost certain to hit the economy even harder. So even if Obama were to have a brain transplant and realize that the path he has committed himself to is irresponsible and destructive, S&P has a gun to his head and will allow him no retreat.

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  1. Dennis long

    S&P and Moody’s had no problem knowingly rating all of those toxic mortgage securities as AAA. Why would they be acting differently now? “Invest” lots of money shorting the economy, and then, lower the credit rating. sounds like they could make lots and lots of money.

  2. readerOfTeaLeaves

    So the same geniuses who gave AAA to junk in the CDOs are now playing kingmaker? Figures.

    But S&P might think a bit more deeply about what it really means to be a kingmaker over a system that is as wobbly, deeply conflicted, and antagonistic as the one we appear to be seeing.

    It’s ironic that all the people who hated Dodd-Frank and got all uppity and went out and wrote checks to Tea Party candidates are now shocked (shocked!) that these Tea Partiers really are intractable. Whocoodanode?

    S&P might want to consider the viability of the system they seem so intent upon controlling. As the current dynamics play out, the system as a whole appears to be veering toward junkiness. Maybe all those big campaign checks to the intractable Tea Partiers weren’t such a AAA idea, after all…?
    Very sad.

    If S&P has the same effect on the US political system that Murdock had on UK politics, expect more dysfunction, extremist conspiracy chatter, and toxic interactions ahead.

  3. Anchard

    Just scanned the brief they put on the web (here: http://tinyurl.com/6eddpnb), and noticed something that I haven’t seen addressed elsewhere. Their base case for the debt expansion path is that debt/GDP will grow from 75% to 84% by 2013, which they pose as the real concern, and take as the rationale for demanding $4 trillion in debt reduction.

    The base case is in turn based on two assumptions that come out of nowhere. The first is for per annum GDP growth of 3% between now and 2013, which is crazy. The second (as noted by Hullaballoo, and Frum Forum) is the assumed repeal of the Bush tax cuts.

    This structure means that we’re doomed no matter what we do. If we come up with $4 trillion in cuts, that will (as Yves pointed out) certainly tank the economy, thus ensuring that we don’t remain on a debt path predicated on 3% GDP growth. Or if we magically manage to achieve both growth and cuts, you can be sure that the Bush cuts will not be repealed, so we would fail on that measure.

    This is exactly – to a T – the trap that gets laid out for weakened borrowers when they have to deal with the entire debt enforcement system. How ironic that it is now being applied to the country that created it.

    1. Yves Smith Post author

      This is garbage on so many levels, let me address it.

      First, the CBP projections are 76% for 2015, they fail to net out financial assets also held by the government. See Table 1 here, you only get to 61% federal debt to GDP:


      Second, 84% ls below the figure cited by Reinhart and Rogoff as having a negative impact on growth, and we debunked that study earlier:

      The concern re US government debt is so wrongheaded I don’t know where to begin.

      Even the Reinhart/Rogoff analysis, which is REALLY bad (they go back 800 years, to economies that bear no resemblance to a modern economy, and mix gold standard economies, which is most of them, in with fiat issuers) shows you don’t have a negative growth impact until sovereign debt to GDP hits 90%. And even if they had the right data (which they DON”T, this is an apples and oranges sample), that does not prove causality! People who have gone through the examples point to numerous cases where it was pre-existing low growth (often + a financial crisis) that led to the debt to rise, NOT the debt levels leading to low growth.

      And where is US debt projected to get, even if you believe Reinhart/Rogoff? 76% of GDP. That’s with NO deficit cutting measures implemented, it’s expected to stabilize at that level ~ 2015-2016. Debt will grow but not out of line with GDP growth.

      Moreover, Great Britain ran debt levels well in excess of the Reinhart/Rogoff scare levels through its entire period of industrialization. The US got to 200% debt to GDP in WWII. The US has run federal deficits over 80% of its history, and the times it didn’t (such as during Andrew Jackson’s presidency) we had bad recessions and financial panics.

      The problem is NOT debt, it is the failure of US businesses to invest. They have been net savers since 2003. It is very unnatural for the business sector as a whole not to invest during an expansion, that means they are effectively divesting. That in turn is the result of terrible incentives which have produced short-termism.

      When households are saving and businesses are saving too, you NEED government to run deficits, otherwise the economy contracts and wages fall. The best way to do that is through automatic stablizers, since there is a very legitimate concern that governments will not cut back spending once the economy starts growing and businesses invest enough again.

      Another good way is infrasctructure and industry supporting R&D. Everyone forgets we do have industrial policy in the US, the government spends a huge amount on military and drug related R&D. The Australians are very good at that, they have a really well respected government funded institute called the CSIRO that does fundamental and applied research in something like 10 priority industry clusters.

      The problem is since the Reagan era, we’ve bred government to be incompetent, so no one trusts it to do a decent job of investing when the private sector sits on its hands. But that is overdone too. There are a lot of good agencies in the communist state of New York, where we still pay taxes and don’t hate government as much as the rest of the country does.

      1. Anchard

        That is truly outrageous – it then looks like there are in a sense four assumptions embedded in the baseline scenario:
        1.) The 3% growth rate
        2.) The notion that the Bush cuts will be repealed.
        3.) Whatever they used to come up with what appear (compared to the Roosevelt Inst. numbers) to be overly high debt ratios, and
        4.) Their definition – unspecified in the brief – of what constitutes a “problem” level.

        Taken in combination, it’s hard to see how we won’t “fail” these conditions and end back in this situation with them shortly, no matter how the Kabuki play ends up. This is especially true if they are able to determine – again, without specifying – what a “problem” level is, and to use their own numbers in calculating it.

        1. Yves Smith Post author

          You are missing:

          1. The failure to net out financial assets

          2. The notion that 84%, or 90%, or some particular number of government debt to GDP is a horrible event to be avoided.

          1. Anchard

            Fair enough, though I think your point 1 is included in my point 3. So the full list of problems with their baseline would be:

            The unattainable:
            1.) The 3% growth rate
            2.) The notion that the Bush cuts will be repealed.

            The arbitrary and mistaken (but unspecified, and thus suspiciously malleable):
            3.) Their unstated methodology in calculating debt/GDP, which produces questionable results
            4.) The existence of some danger threshold
            5.) Their unspecified definition of how they determine what that threshold is.

  4. Troy Ounce

    The fact that rating agencies downgraded different European countries just means these countries did not pay them enough.

    Apparently everything is for sale: honor, honesty, mothers and a professional opinions. One should almost think this is the end of an empire.

    1. psychohistorian

      But, BUT! They are doing Gawd’s work…..or at least Jim Haygood would seemingly say so…..see his comment below a ways.

  5. b.

    re-run from “Tarp 2.0” on July 24, 2011 at 5:10 pm

    In reference to the section on S&P here …

    A rating agency – one that should be discredited at best, investigated at worst for its performance leading up to 2008 – is attempting to dictate policy choices by changing its ratings for political reasons. The fiction that Obama has been mouth-breathing from his Bully Pulpit – “our nation’s credit card” – is now turned into real leverage through financial market manipulation of interest rates for public borrowing.

    If you are looking for a “coup” where monied elites and their bankster thugs are taking over, this is probably as blatant as it will ever get.

      1. skippy

        There is strong leadership, its just working for…its base.

        Skippy…user pays system…eh.

    1. wafranklin

      This whole thing smacks of collusion by the banks and hedge fund types operating through S&P, Moodys etc. to influence the 2012 economy and election, both directly and indirectly. I cannot think S&P and Moodys came up with all this independently — someone is lining their pockets profusely to impact the economic situation, which from the Republican standpoint needs to get much worse — which they are working hard to achieve. In other words, the bastards are being bribed, paid, etc. to throw the game. Why has DOJ or the NY AG not ripped their knickers badly for 2007-9?

      1. Because

        I am not sure a “worsening” economy helps Republicans long term. Maybe for a election, but by 2014 while the economy crumbles and living standards are being destroyed, they will take full blame while social services are being destroyed and unemployment rises toward historical figures. State governments could begin to collapse and anti-Republican forces could begin a quasi-civil war as desperate former white middle class rebels join the cause.

        Unless they are going for a coup and not give back power to anybody else.

    1. Yves Smith Post author

      I missed it, but apparently Martin Feldstein also said the ratings agencies are “feeling their oats”. Aargh.

  6. chris

    And if a ratings agency which did not sell triple A ratings (hence having more credibility) downgrades the U.S. as Egan-Jones did?

    Simple and expedient answer to maintain the illusion of how wonderful U.S. paper is- Ignore that they did so and pretend all is well.

  7. Jim Haygood

    ‘It appears imminent that the credit ratings agencies will downgrade US debt. It’s completely irrational and unjustifiable.’ — Jane Hamster

    What is irrational about downgrading a borrower who misses a payment date?

    What’s irrational about downgrading a borrower whose negative net worth is between $60 and 200 trillion, depending on whether you go with the Financial Report of the United States or Laurence Kotlikoff’s numbers?

    Go run on your little wheel, Jane. Squeaky, squeaky!

  8. vlade

    I can’t very seriously believe that PIMCO (or any other large bond investor) sets much store by ratings. Sure, some of them have rating-based rules, but FGS, they are rules, not laws of nature! If S&P says that the kid across the street’s paper is AAA rated, will PIMCO buy it?

    This could be a stellar opportunity to dump the rating agencies where they belong – at best as an advisory body in line with things like research papers from consultancies.

    So US loses AAA rating, so what?

    The sheer political idiocy is much worse – and that’s obvious now, even with the rating. Unfortunately, there’s no-one who will punish that, as whatever result (short of total financial armageddon), both sides will present it as their victory.

  9. Don't GS me please!

    How did these RATING AGENCIES come to the ‘positions’ where they can dictate? Who allowed them? Why the regulators even consider their recommendations?

    How come NO ONE from either of the parties did any reform to break the MONOPOLY?

    We have found the Enemy -look in the mirror!

    From FT:

    “Rating agencies do not claim to be the sole voice expressing reasoned views about the future. The bigger question for the financial system is how ratings are used by regulators and policymakers. Their reliance on ratings in determining regulatory and policy decisions may be encouraging excessive focus on rating agency opinions.” ..{..}
    ..A better approach is to drop regulatory mandates to use ratings and avoid making ratings the sole criteria for policy decisions. That would reduce their impact on markets and on public policy. And it would free rating firms to compete entirely on quality..’

    – Deven Sharma Pres of S&P

  10. Tao Jonesing

    A couple of things. First, the bond market doesn’t seem worried about a downgrade happening any time soon. If they were, yields should be going through the roof, but they are not. Second, given this observation, you cannot look at what S&P as doing as anything other than propaganda aimed at getting spending cuts through Congress.

    S&P does not have a gun to Obama’s head. It is laying down cover fire for what he and Congress want to do for Wall Street.

  11. don

    Looks like there will not be a downgrade. The political pressure is too great to allow a rating agency to determine the fate of the . . .


    Standard & Poor’s President Deven Sharma told a congressional panel Wednesday that previous reports indicating Congress would need to make $4 trillion in deficit cuts over 10 years to retain the top credit rating were inaccurate.”

    Sharma told the panel “there has to be a credible plan” to reduce the U.S. debt burden. He said some of the plans put forward would qualify as credible.”

  12. Cedric Regula

    Egads! I didn’t get invited to these meetings!

    Did anyone stop and think a moment and realize the reason S&P met with Pimco is to ask why Pimco sold all their Treasury bonds already? Compare models maybe? Hmm?

    And why wouldn’t S&P prefer the Reid plan which includes slow divesture of non-performing assets Iraq and Afganistan? Hmm?

    And when S&P takes $14T in debt divided by $14T in GDP and gets a ratio of 76%, I think that is being pretty damn fair, don’t you? Hmm?

    And when the agreed upon parts of the Grand Plan Budget Battle look like this:

    Rs – read my lips – no new taxes – no defense cuts

    Ds – read my lips – no new taxes – no defense cuts

    Mr. O – read my lips – no new taxes – no defense cuts

    Then S&P whispers to big clients – read my lips – no AAA rating?!?!

    Say it ain’t so!!!!

  13. Tom g

    Uh, is it time to post that Bill Black video again where he points to a specific paragraph in one of the CRA’s ratings where it says that the ratings mean absolutely nothing?

    Yves, you should include that in your post to remind people how relevant the ratings agencies actually are.

  14. Because

    Frankly, who cares about CRA’s or Obama. Both are irrevelant.

    The key is when final point of impact oomes and the entire global economy collapses. That is when you make your move to sieze credit markets from stupid capitalists and return balance back to the American nation.

  15. primefool

    Iam surprised no one seems to be publicly questioning the basis on which the CRAs claim to rate sovereign entities – entities that issue fiat currency in any quantity they seem fit.
    maybe the current episode will be the one to trigger such a bold question. The meek journalists need some intellectual ammo to pose the question.
    1. Do the CRAs claim that an entity such as the US govt will be unable to “pay ” on its issued debt in its own fiat currency – involuntarily? That is a laugh.
    2. If they agree that 91) is ridiculous – then are they claiming that if the sovereign debt gets to some magic level it will cause such economic turmoil that the govt may – perhaps – forget to pay out on its debts?
    What exactly is their analytical methodology? Why is no one questioning it?

    1. Cedric Regula

      There is no methodology because no one can figure out how quickly sovereigns will run their currency down to zero.

      Think rating agencies have a crystal ball or something?

  16. primefool

    Secondly- perhaps journalists need to do some research into the ratings saga wrt Japan ( which i believe is AA and was downgraded a few years ago)? The yen has gone from strong to stronger and JGB yields continue to require a magnifying glass to identify. So perhaps the markets have long ago dimissed these sovereign local currency ratings as complete BS?
    If the ratings methodology is ridiculous ( would anybody be surprised?) – and the markets have known this for a long time – then I think the question becomes what purpose do they serve – which underscores some of the more sinister interpretations from this excellent piece.

  17. primefool

    Sorry for the chain postings!
    Finally – what exactly is the legal status of the CRAs? My understanding is that the CRAs consider their ratings to be just a private opinion – kinda like writing a NY times editorial. Are they regulated? is their methodology revealed to the regulating authority ? Does anybody outside these entities have any say in how they come up with their ratings?
    They used these type of arguments to wriggle out of uncomfortable questions for their collosal failure in the 2008 episode – they are not “underwriyers” but merely “journalists” providing a private opinion for a fee – to the issuer(hahahaha)!!. Strange business arrangement to say the least!

    1. Kraken

      Paul Roberts says that if the rating agencies downgrade the US, their executives will be jailed for rating junk MBS’s as AAA. Sounds plausible to me.

      1. primefool

        I very seriously doubt the rating agencies will do anything without a blessing from the WH. These guys are not the sharpest knives in the drawer , nor are they rich and powerful. They are accounting factotums.

  18. Tim

    What enabled us to get to this point was that big Financial decided bet so heavily on the assume that Rating Agencies accurately quantify default risk. Bad assumption, but everyone went with it. And it appears no one knows what to do without them yet even after the CDO mess.

    No difference from the FICO score. I was sure the housing bust for prime borrowers would banish FICO scores but it didn’t, it’s still the biggest determinant for getting a mortgage and a preferential rate on that mortgage.

    The next dominoe was the magnitude of investment that is driven by ratings requirements such that actions concern themselves with ratings agency’s interpretation and the loop is complete and open to a power grab by the ratings agencies.

  19. skippy


    “In his intriguing new book “Born Losers: A History of Failure in America” (Harvard), Scott Sandage argues that the mid-19th century saw a redefinition of failure–from something that described a lousy business to something that defined a whole life.”
    — The Economist (UK)

    “It is in order that each of you may have an open field,” Lincoln was saying about why they fought, “and a fair chance for your industry, enterprise, and intelligence.” A fair chance. He was speaking their language, telling them what the struggle meant and why it must go on, even two or three more years. The president talked fast—quicker than you might guess his Kentucky twang could go. He would spit out two or three mouthfuls of words before he paused to accentuate two or three phrases that he especially wanted you to remember. He was nearly finished now: “. . . that you may all have equal privileges in the race of life, with all its desirable human aspirations.”5

    The race of life. No one knows which words Lincoln stressed that day, but no phrase stuck longer in this intensely ambitious and competitive man’s vocabulary. In 1852, he had exalted the race of life in a eulogy to Whig statesman Henry Clay, coiner of the phrase “self-made manhood,” an ideal Lincoln deliberately embodied. In the presidential race of 1860, Lincoln promised “the humblest man an equal chance to get rich with everybody else. When one starts poor, as most do in the race of life, free society is such that he knows he can better his condition.” He said, “I want every man to have the chance—and I believe a black man is entitled to it.” The slogan graced his first message to Congress in 1861, only three months into a war “whose leading object is . . . to afford all, an unfettered start, and a fair chance, in the race of life.” After 1863, “unfettered” took on a more liberal (and literal) meaning, yet emancipation enlarged Lincoln’s creed without changing it. Individual success was devalued unless all could strive freely, and freedom was a meaningless abstraction without “a fair chance” to succeed.6

    In those dog days of August 1864, when he risked his office rather than break the promise of emancipation, surely Lincoln tried all of his old stump-speaking tricks to make the soldiers hear “equal privileges in the race of life” and embrace it as their true cause. He spoke fewer words that day than in his brief elegy at Gettysburg nine months earlier, where on a pasture of death Lincoln heralded “a new birth of freedom.” Now, on the White House lawn, addressing men lucky enough to have avoided the graveyard, he translated the poetry of Gettysburg into plain talk that the greenest private could grasp.7

    “It is for this that the struggle should be maintained,” he concluded, barely three minutes after he began. “The nation is worth fighting for, to secure such an inestimable jewel.” The jewel of liberty, a new birth of freedom, the race of life: All three named Lincoln’s vision of a nation of strivers, which gradually but irrevocably linked the war for ambition to the war for abolition. This duality encompassed what he meant by “a new birth of freedom”: a fresh chance at self-made manhood, a right to rise for white men as well as for black men. This vision did not get Lincoln reelected in 1864—military victories clinched that. But it did get him killed. John Wilkes Booth, after hearing Lincoln promote limited Negro suffrage, vowed that the tyrant had given his last speech. At first a reluctant emancipator, Lincoln’s faith that individual effort alone should earn men success or failure in life ultimately cost him his own. attrib – Scott A. Sandage


    Rippin yarn, although it puts a blemish on the Obama / Lincoln stuff.

    Skippy…Check out the history of CRAs and whilst at it plus all exchanges and their sub components. Should they trade in back alleys again, rain or shine, now that would be manly, hunt / kill thingy.

    PS. CRAs, just a pay as you go wind vane…say it ain’t so…*Free Market* what an epic oxymoron.

  20. primefool

    These CRAs probably had and continue to have a useful role as analysts of traditional corporate debt. They hire accounting grads and they can do all manner of ratios and stuff and come up with a “rating” . Useful clerical type work- for clerical type wages. Thats what they used to be.
    The complex structured products were completely beyond their abilities to understand – but they were seduced by big fees to be told by some wall streeter what rating he would like.
    Sovereign ratings are also probably well beyond their abilities to understand. In this case they have probably become pawns of various govt bureucrats with their own agendas – and get paid fees to do as they are told.

    To get China off our backs and continuing to buy Treasuries – it sure would be great to stage a circus at the end of which some nominal budget cuts are agreed to (to be enacted after the career spans of the current bureacrats – of course)- which the CRAs “reluctantly” and after much “analysis” bless. This will act as a way to stamp AAA on the current state of affairs – which does have many Asian countries very nervous and heading for the exits. Maybe keeps the game going onwards and upwards – until the next crisis.

  21. AndyLynn

    forgive me – but wouldn’t all this get fixed pretty damn quick if the Congress passed a new law that didn’t *require* CRA AAA ratings for investment grade securities? (perhaps it might only *recommend* such – as part of a broader assessment.) given what the CRA’s have said about their past dysfunction, wouldn’t that better reflect the reality of the situation, anyway?

  22. hermanas

    Were the rating agencies responsibility for tanking the economy a “failure” or an intention? Could these new moves be furthering an intention of wall street capturing assets?

  23. Schofield

    Shorting the US economy because so few understand how it works. Pathocracy at its finest!

  24. Nathanael

    S&P is completely discredited among all investors already anyway.

    Why do they think they have any power over anyone? Who is giving them that power? Frankly, who CARES if S&P rates the US as “F”? S&P’s ratings are crapola anyway and everyone knows it.

    If I were issuing bonds I wouldn’t even get an S&P or Moody’s rating, and if asked why I’d point out that S&P and Moody’s ratings are worthless crap. I suppose I might get a Fitch rating.

  25. Philip Pilkington

    FDL: “But no matter what political stagecraft is orchestrated, there is a very serious chance that a ratings downgrade will trigger an economic downturn that would cause unemployment to rise dramatically….”

    I seriously doubt that. Ratings agencies have been slashing Japan’s ratings for years with no direct consequences.

    However, as was shown in Japan when they cut back on government spending and bumped up unemployment about a decade ago, ratings agencies can certainly have indirect effects. But we should be quite clear: ratings downgrades do not DIRECTLY translate into a reduction in economic activity.

  26. chris

    So, this morning S&P grows a pair and tells the wankers at Goldman and Citi they will not rate a CMBS issue.

  27. LeeAnne

    The all-clear must have been rung. The rats are all coming returning: Hank Paulson drug out for comments on policy; Greenspan featured for same on FT front page; and now S&P without whom the securitization scheme could not have spread its residential real estate disease all over the world. With a get-out-of-jail card from the justices of the U Nited States of America Supreme Court who ruled with summary that goes something like this:

    Hey you citizens, voters, consumers, people out there, listen up: rating agencies are just novelists. Like you and me they can say any damn thing they please.

    Caveat emptor, or you’re on your own. there ain’t no law here.

    1. Foppe

      Do tell: why is Yves supposed to care about your feelings? Because I, as a lowly visitor, am at a loss.

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