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United States News Title: Standard & Poor's Acts High And Mighty To Hide Low And Dirty Dealings With Wall Street You stand in front of Standard & Poor's bustling headquarters on Water St. and wonder why anybody listens to it, why it was never held accountable, why it is even still in business. The front of the building should be taped off like a crime scene or boarded over like some foreclosed home. And S&P should not even be in a position to lower the U.S. rating and panic already jumpy investors worldwide, much less with calculations involving a $2 trillion error. My guess is that by acting high and mighty, S&P is trying to make us forget how low and dirty it was back in August 2004. That was when S&P relaxed its standards to keep Wall Street happy and itself flush with fees Wall Street pays it for ratings. At the time, Wall Street was in the midst of underwriting $3.2 trillion in subprime mortgages. It packaged them into securities, foisting them off on "investors," as the suckers were called. To win over the suckers, the banks needed AAA ratings. Moody's was the first to declare itself willing to oblige, instantly making itself the place for Wall Street to go for ratings. Rather than lose out to its competitor, S&P agreed to relax its rating criteria. "I knew it was wrong at the time," an S&P managing director named Richard Gugliada later said. "It was either that or skip the business." The business was so important that S&P and Moody's kept issuing AAA, investment-grade ratings even as it became increasingly clear they were certifying garbage as gold. "Credit rating agencies were aware of problems in the mortgage market, including an unsustainable rise in housing prices, the high-risk nature of the loans being issued, lax lending standards and rampant mortgage fraud," the Senate Finance Committee found. The firms became even more lax with ratings as they sought to beat each other out. "The result was a race to the bottom," the committee said. In July 2007, so many subprime mortgages were going bad that even the suckers could not be fooled much longer. S&P and Moody's suddenly declared that thousands of mortgaged-based investments they had rated AAA were now officially junk. Numerous banks, pension funds and other institutions that can only carry investment-grade securities were forced to dump holdings they would not have acquired in the first place were it not for the AAA ratings. "The result was an economic earthquake from which the aftershocks continue today," the Senate report concluded. The Securities and Exchange Commission declared S&P and Moody's to be "accomplices" in the financial crisis that brought us to the brink. Both rating companies still kept their fees even as we ended up paying billions in bailouts. Back at the time of the previous great crash in 1929, rating companies were paid by investors, not by Wall Street. Investors were subsequently loath to pay firms that failed so miserably in anticipating the disaster, and rating became what was termed "a stagnant business." In 1970, "subscriber pays" was substituted for "issuer pays," the fees coming not from the investors but from Wall Street. After what S&P and Moody's did with the mortgage securities, it should be "nobody pays."
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#1. To: Brian S (#0)
I don't recall the Left hating on S&P b4 the Obama Downgrade. The Obama Blame Game Presidency rolls on.
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