“The decision by credit rating agency Standard & Poor’s to downgrade the United States after markets closed on Friday may have kicked up political consternation and triggered a market plunge, but it also raises important questions about the reliability of credit ratings and, for that matter, the firms that bestow them.
” . . . So which countries are among the lucky few that still have perfect ratings from all three firms? The United Kingdom and France, just to name a couple. S&P apparently thinks that both the U.K. and France are safer investments than the United States.”
In July 2009, CalPERS, manager of the largest public pension fund in the United States, sued Standard & Poor’s and two other large financial rating firms. The suit faulted the rating companies for giving coveted top grades to bonds that suffered huge losses from the meltdown of the market for subprime mortgage securities.
Investment banker Dan Alpert of Westwood Capital, says the ratings agencies took improper liberties when they handed out AAA ratings on securities backed by subprime mortgages and other other risky securities. He believes the agencies lost their way as “gatekeepers” and ignored warning signs the housing bubble was about to burst. “Consequently, they are at risk right now for lawsuits on a whole variety of cases,” he says. The CalPERS suit is “just the tip of the iceberg.”
McClatchy Newspapers, Credit ratings agencies in crosshairs after U.S. downgrade
” ‘I think S&P’s shown really terrible judgment and they’ve handled themselves very poorly and they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math,’ Geithner told NBC on Sunday. ‘And I think they drew exactly the wrong conclusion.’
“Late Monday, Senate Banking Committee Chairman Tim Johnson, D-S.D., joined the chorus.
“This irresponsible move by S&P may, however, have spillover effects that tax the American people by increasing interest rates on home loans, credit cards and car loans, and by increasing the cost of finance for some state and local governments. I am deeply disappointed in S&P’s decision to enter into the game of political punditry,” Johnson said in a statement.”
“The Administration and its allies have gone after Standard and Poor’s for its downgrade of the US bond rating to AA+. They have attacked S&P’s general competence, its failure to reexamine its decision in the light of a $2 trillion math error (a Wall Street Journal story does not reflect well on S&P’s haste) and the subjective and political basis for its judgment. . . “