S&P Timeline : Culpability Then Threats
Update1: Twitter response: #StandardandPoorsThroughoutHistory
Update2: Who owns Standard and Poors? McGraw-Hill. Who runs McGraw-Hill? See the Board of Directors, courtesy TheyRule.net, tip @dartdog
- Th Apr 13, 2011: Moody’s, S&P Caved In to Ratings Pressure From Goldman, UBS Over Mortgages – Bloomberg
- Fri Apr 14, 2011: Moody’s, S&P Triggered Financial Crisis, Congressional Report Finds – Reuters
- Mon Apr 18, 2011: S&P threatens to cut U.S. credit rating on deficit – Reuters
- Mon Apr 18, 2011: S&P’s Negative Call Stems From Crisis That Some Say It Caused – CNBC
From the Senate report, WALL STREET AND THE FINANCIAL CRISIS: Anatomy of a Financial Collapse (pdf):
Moody’s Investors Service, Inc. (Moody’s) and Standard & Poor’s Financial Services LLC (S&P), the two largest credit rating agencies (CRAs) in the United States, issued the AAA ratings that made residential mortgage backed securities (RMBS) and collateralized debt obligations (CDOs) seem like safe investments, helped build an active market for those securities, and then, beginning in July 2007, downgraded the vast majority of those AAA ratings to junk status.953 The July mass downgrades sent the value of mortgage related securities plummeting, precipitated the collapse of the RMBS and CDO secondary markets, and perhaps more than any other single event triggered the financial crisis.
Between 2004 and 2007, taking in increasing revenue from Wall Street firms, Moody’s and S&P issued investment grade credit ratings for the vast majority of the RMBS and CDO securities issued in the United States, deeming them safe investments even though many relied on subprime and other high risk home loans. In late 2006, high risk mortgages began to go delinquent at an alarming rate. Despite signs of a deteriorating mortgage market, Moody’s and S&P continued for six months to issue investment grade ratings for numerous subprime RMBS and CDO securities.
Any thoughts about payback?
Added: 10.57 pm : Robert Reich
Until the eve of the collapse S&P gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.
Had S&P done its job and warned investors how much risk Wall Street was taking on, the housing and debt bubbles wouldn’t have become so large – and their bursts wouldn’t have brought down much of the economy. You and I and other taxpayers wouldn’t have had to bail out Wall Street; millions of Americans would now be working now instead of collecting unemployment insurance; the government wouldn’t have had to inject the economy with a massive stimulus to save millions of other jobs; and far more tax revenue would now be pouring into the Treasury from individuals and businesses doing better than they are now.
In other words, had Standard & Poor’s done its job over the last decade, today’s budget deficit would be far smaller and the nation’s future debt wouldn’t look so menacing.
We’d all be better off had S&P done the the job it was supposed to do, then. We’ve paid a hefty price for its nonfeasance.
7 Responses to “S&P Timeline : Culpability Then Threats”
Yes, it looks like payback.
I have to disagree that the ratings agencies caused the crisis by downgrading bad debt, however. The real problem was that, for whatever reason, the ratings agencies weren’t calling it bad when it was building, otherwise known as doing their job.
They are paid to see when problems are forming, not for assigning a grade to the results.
Hi, ProfElwood — the rating agencies contributed to the crisis by continuing to rate risky instruments as AAA when they knew that the instruments were risky. Then they exhibited typical WS panic behavior and did a massive downgrade.
I thought the same thing: S&P is being slapped around for being incompetent by the U.S. government, so they slap back by downgrading our credit.
The thing is, though, our financial house is a sloppy mess, and regardless of the motive, you can’t fault S&P for being right.
That’s what Reich was saying in his piece, Prof.
S&P is right. Where are the $4T in cuts that they and others expected to see? (And more cuts later, to keep annual debt in line.)
And political risk (last associated with CA Gov. Gray Davis’s threat to seize power plants a few years ago) is a legitimate concern when we as well as S&P have seen a lurid public spectacle with bickering over budget details and even fundamentals. How many really have faith in the “super-commission” do get something good and right, and will we see good, though tame, recommendations rejected again by Obama, Pelosi, and Reid, and ignored in subsequent policy matters?
Maybe we need to submit to an IMF reform plan. [wink]
[...] want to destroy government’s social use and those who will not stand up for it. But as Kathy Gill observes, McGraw-Hill owns S&P, and this is who owns [...]
Jim, cheap shot.
The bit from Reich was not there when Prof read and commented. That’s why I put a timestamp on the post – what I forgot to do was add “Pacific” time. Note MY comment back at 2.01 AM TMV time (east coast) – that was right after I added the link.
DLS – yes, there is political stupidity in Washington — the mess that Congress made over the FAA should be enough to get people UNelected (because it was so freaking irrational) but it won’t. However, who died and made S&P the banking god — you know the one that says “you must reduce spending by $4trillion”? NO ONE.