Was the S&P Downgrade of the U.S. Really all about Dodd-Frank Regulations on Civil Liability of Credit Rating Agencies?

S.E.C. Cat tries to warn the 3 Credit Rating Agency Birds that they Could be Liable for their Inaccurate Credit Ratings. Photo Credit: Angry Birds vs Angry Cats by MSeckington on flickr cc DSC_0490

The New York Times Business Section ran a piece called, “S&P, Accused of Faulty Math, Fights Error Disclosure Rule,”  about how the President of S&P, Devon Sharma, sent a letter to the U.S. Securities and Exchange Commission (S.E.C.) about his difference of opinion regarding “error disclosure rules” that would make a credit rating agency publicly reveal the details of their errors.

Funny thing, you see Monday, August 8, 2011, a few days after the big day, Friday, August 5th when S&P blew up the U.S. and world economies, was the last day to provide “comments” to the S.E.C. regarding the pending rules on credit rating agencies and how they:

1.  Deal with errors internally in their organizations when rating a particular organization, corporation or country

2.  Would be required to make public any major error discrepancy and also its methodologies for deciding on the credit rating for a particular country or organization or corporation.

Here is the letter that Mr. Devon Sharma wrote to the United States S.E.C. As the New York Times indicated, Mr. Sharma thinks credit rating agencies should have privacy regarding the errors they make. Also, he does not think it is appropriate for an agency like the S.E.C. to create a “definition” of what might constitute a glaring “error” in calculating the creditworthiness of a country, or state, or city, or corporation.

Yes, Mr. Sharma who is unelected by the people of any country, including the United States, thinks that credit agencies like Standard and Poor’s which he is President of, should police themselves and that everyone should trust that they will rectify any errors in credit rating methodologies they might make.

S&P Says Trust Us, Don’t Pay Any Attention to the 2008 Debacle where we Over-rated Junk Mortgage Backed Securities

S&P has yet to reveal how it managed to rate junk mortgage-backed securities AAA. This mis-rating of corporate securities lead to the collapse of the U.S. economy which sent shock waves around the world in 2008 and beyond. It also was directly related to the bailouts under G. W. Bush and Barack Obama of the banks and brokerage houses that cost taxpayers billions of dollars and many jobs due to their irresponsible overspeculation.

S&P still has failed to fully reveal how it calculated its “math” and “assumptions” for giving AAA ratings of toxic corporate securities that sunk the U.S. economy.

As Congressman Barney Frank revealed, there seems to be a real problem with the way S&P consistently downgrades the creditworthiness of public governments–cities, states and countries, yet simultaneously consistently overvalues the creditworthiness of private corporate debt.

Who exactly are these small biased committees of people who decide credit ratings of countries and public and private entities that could result in billions of dollars of unnecessary additional costs to taxpayers, and why does the world pay any attention to their credit ratings?

Dodd-Frank Wall Street Reform Law would Expose Credit Rating Agencies to Civil Liability–it’s a good thing

The Dodd-Frank Wall Street reform law would turn the tables on credit rating agencies and make them financially liable for their mistakes. Yes, Dodd-Frank could expose S&P and other credit rating agencies to possibly being sued if their credit ratings are inaccurate. S&P does not like this. It might cut into its profits of over $2 billion (which it made in 2009).

Now Do We Get The Big Picture of S&P’s Pre-Emptive Strike on the U.S.?

OK, so S&P decided possibly to check out how powerful its credit rating swordsmanship was, so it cut the credit rating of the U.S. to see if anything might happen. Were they testing the waters? As we can see from the wild swings of the market over the last few days, and the fear and panic unleashed hopefully temporarily, S&P is probably very happy with itself on how much power it seems to have right now before pending regulations. Now, it is not liable for bad credit ratings. Hopefully the S.E.C. and Congress will come to its senses and stop placating the bullies at S&P and the other credit rating agencies. Why should they be shielded from civil liability if their credit ratings are inaccurate and create great cost to people and public and private entities?

It seems that S&P currently is on a wild rampage as the biggest bully in town to use its little credit-rating-cutting sword to attack anyone who questions their methodologies or confronts them with glaring $2 Trillion dollar errors — even the great Warren Buffett.

The 2$ Trillion S&P Error-Filled Assumption Called by the U.S. Government

When S&P sent a draft press release to the U.S. government informing them that they were going to be downgraded, the U.S. government said, not so fast, you are miscalculating your credit rating of the U.S. by $2 Trillion dollars.

S&P did not blink an eye. Instead they tried to wave away this inconvenient bit of news by saying that the $2 Trillion Dollar error wasn’t an important “assumption” in their final decision to downgrade the U.S. government. Really?

So now S&P wants to keep the total picture of how they downgraded the U.S. private and we should just trust S&P is doing the right thing. It is time to lift the curtain and reveal the truth about the motives and reasons why S&P is flexing its credit rating sword.

According to Jeffrey Manns, in his article today “The Revenge of the Rating Agencies,” in the New York Times,

“The credit rating agencies are taking advantage of the country’s financial problems to increase their own political power. They want to ensure that regulators do not reduce their autonomy and influence.”

“The S.&P. downgrade has elevated this simmering standoff to an overt clash. Politicians will be tempted to wave a white flag by granting the agencies a pass from tough regulation in exchange for the agencies’ not downgrading federal debt further. While that approach may give the United States breathing room in the short run, the government should not give in to such extortion.”

S.E.C. Cat wants S&P Angry Bird to disclose how it arrived at its downgrade of the U.S. in spite of its $2 Trillion Dollar Miscalculation. Photo Credit: Angry Birds vs Angry Cats by MSeckington on flickr cc DSC_0497

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