Barry Ritholtz speaking to Canadian TV on his feelings about S&P, Moody's, and Fitch:
I stated my long held views about them: That they were a prime enabler of the credit crisis; that they were one of the most corrupt institutions in the United States, and had sold their ratings to the highest bidder. That their senior executives were criminally liable and deserved jail time.
C'mon Barry. Tell us how you really feel.
S&P, Moody’s and Fitch themselves deserved to be executed — the same corporate death penalty that Arthur Anderson received. I stated I was perplexed as to why they were not put down like rabid dogs". ... "The issue here is not the debt ceiling or the ongoing deficits — but rather, yet another corporate criminal allowed to roam free."
Ritholtz knows what he is talking about. Currently he runs a quantitative research firm and writes The Big Picture and previously ran a hedge fund.
Unfortunately, even though Ritholtz believes they are run by criminals, the ratings agencies have yet to pay a price for their malfeasance. They are still important players in rating both companies, and oddly, nations. They are right in the middle of the ongoing problems over debt in Greece, Portugal, and the other European nations that are now struggling under debt burdens. But more alarmingly, they seem intent on dictating a policy of austerity to the United States.
In the middle of the fight between elected Republicans and Democrats over the U.S. Debt Ceiling the unelected ratings agencies are playing a large part.
S&P raised the threat of a downgrade July 14 by declaring that raising the debt limit alone might not be enough. It wanted to see an enforceable agreement to cut $4 trillion over 10 years to affirm the triple-A rating.On July 18, the agency stated it may lower the U.S. long-term rating "by one or more notches" into the "AA" category in the next three months if it concludes Congress and the White House "have not achieved a credible solution to the rising U.S. government debt burden and are not likely to achieve one in the foreseeable future."
S&P's threat of a downgrade to the nation's credit rating goes one step further than Moody's and Fitch, the other two major credit rating agencies, by declaring even if Congress agrees to lift the $14.3 trillion debt limit, they and President Obama must also reduce the deficit by $4 trillion over 10 years.
Really S&P? 4 Trillion over 10 years is the magic number we need to hit to keep our rating? How about a clean debt ceiling increase? That's not good enough? You're sure that an improving economy and some action to rein in spending in the next few years won't be enough to ensure the solvency of the United States?
Of course S&P isn't sure. They have no freaking clue. It's not like the ratings agencies cleaned house and threw out all the incompetents who couldn't see the housing crash coming and never said a word while President Bush ran up the credit card bill. Nope. It's the same bunch of incompetents who are trying to tell us how to run our country.
Regardless of whether S&P has a clue, their action immediately got the attention of players from both parties in the debt fight.
Administration officials were shocked by the move. They suggested privately that it did not seem to square with prior S&P reports, which said the nation’s larger budget problems could be dealt with over several years. Some administration officials dismissed the S&P report as little more than amateur political prognostication by people with limited understanding of how Washington works.
Didn't square with prior S&P reports. Amateur political prognostication. Sounds about right. Nevertheless, due to their influence, President Obama felt it necessary to speak about the threat of a downgrade in his prime time address Monday:
“For the first time in history, our country’s triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet,” Obama said. “Interest rates would skyrocket on credit cards, on mortgages and on car loans, which amounts to a huge tax hike on the American people. We would risk sparking a deep economic crisis — this one caused almost entirely by Washington.”
That sounds bad. But is it justified for S&P to take this action? Writing on his blog, Ritholtz links approvingly to this post by Zachary Karabell at The Daily Beast:
How did a bunch of unelected corporate suits get the power to wreck the global economy? ...As the debt-ceiling storm intensifies, some reports indicate that the White House, and perhaps the global financial markets, are less concerned with paying bills after Aug. 2 than with credit-rating agencies imposing their first-ever U.S. government downgrade, from AAA to AA+.
How did it come to this—that a trio of private-sector companies could wield such enormous influence? More specifically, a trio that has proven chronically behind the curve, analytically compromised, and complicit in the financial crisis of 2008–09 as well as the more recent euro-zone debt dilemmas? Somehow, these inept groups again find themselves destabilizing the global system in the name of preserving it . . .
Yet here they are again, threatening to downgrade the debt of the United States—potentially costing taxpayers hundreds of billions, again, in the form of higher interest payments—because they don’t like the messiness of the political process and they don’t approve of the level of debt relative to GDP, so said David Beers of S&P.
But, really—and I mean this in the most respectful way—who the hell is David Beers and who elected him to be the arbiter of the American financial system?”
Robert Reich follows along a similar line in calling out the fact that S&P is going beyond financial analysis and attempting to dictate politics.
It's the "height of hubris" for ratings agency Standard & Poor's to suggest it may cut the credit rating of the U.S. even if the debt crisis is solved, says Robert Reich, former labor secretary in the Clinton administration."No credit rating agency has gone as far as S&P," he told ABC News today. "That's a highly political move. I'm surprised they are doing it."
It's hard to look at the actions by the ratings agencies and not ask whether there might be a few partisans hiding in the bushes that are behind the move. Speaking of Bush, here's what Reich had to say about that:
"If the U.S. pays its bills, what business is it of S&P to tell the U.S. how much to trim deficit and by when?" Reich said. "S&P never uttered a word of George W. Bush whittling away a bequeathed $5 trillion surplus into a deficit. They never said a word about the Bush tax cuts."
No they didn't. They didn't have a clue then and they don't have a clue now.