More Defensive Reasoning By Standard & Poors

By Chris Mooney | August 10, 2011 6:38 am

These people have the power to wipe out a trillion dollars in wealth just by changing a rating. Yet they are balking at an SEC requirement that they disclose errors in their calculations–claiming they can police themselves. This quotation says it all:

Barbara Roper, director of investor protection for the Consumer Federation of America, said that [Standard & Poor’s internal correction policy] has proven inadequate.

“What was their correction policy on their Enron rating? What was their correction policy on their Lehman rating? What was their correction policy on their Bear Stearns rating? They don’t have an error correction policy — they have an error denial policy, and the SEC is absolutely right to step in,” Roper said.

Revealingly, the other two top ratings agencies–Fitch, and Moody’s–don’t have the same problem with the proposed SEC policy of disclosing rating agency errors.

Read more here.

CATEGORIZED UNDER: Motivated Reasoning

Comments (11)

  1. deathby2

    The stock market is nothing more than mass delusion.

  2. kirk

    The fact that there is a minority report should keep thought crimes to a minimum.

  3. At this very fragile and weird time in our economic history, S&P is going out of its way to shovel sand into our gears. First the downgrade and the market spasms that triggered, and now this nonsense, which only deepens the distrust and even hatred many people in the US feel for “Wall Street”.

    Speaking as an economist, I keep wondering when the corrective nature of the holier than thou free market will kick in and punish S&P. I suspect I’ll be waiting for a really long time…

  4. Messier Tidy Upper

    Perhaps they should send the troops in? 😉

    Have Seal squad six charge in, arrest the Standrad and Poors directors and send ’em to camp X-ray for a good waterboarding and torture session?

    Or perhaps they should bomb the daylights out of them. Hey, it fixes America’s other enemies doesn’t it? 😉

  5. Incredulous

    “Yet they are balking at an SEC requirement that they disclose errors in their calculations–claiming they can police themselves.”

    But before we jump in there and crucify them, how come the SEC hasn’t been monitoring this all along? It’s not like these problems have just cropped up. The Enron stuff was 10 years ago. Bear Stearns was 3 years ago. We have dumped trillions of dollars propping up the banking industry. You mean nobody ever thought to look into it?

  6. Roberto

    What I enjoy is jumping on the bandwagon when a corrective action is finally moved upon. Suddenly, crawling out from the woodwork, we hear “WAIT! Why weren’t they already doing that?” This in inevitably followed with a tirade about the faulty regulatory or oversight, or political, or scientific, or … you get the picture…process involved. Last I observed is that people are NEITHER omniscient NOR omnipotent. Occasionally we have to stumble, fall down, and bloody our nose before we see that the potential for danger existed before we ever saw it. It shouldn’t always be that way, of course…and it isn’t. Sometimes the DFMA exposes the potential problem before it can be encountered, and we can avoid it. Maybe somebody foresaw this issue before now. Surely a political system wouldn’t have deterred exposure of the issue. But now that we’ve exposed it (or feel that we have), let’s invistigate in an unbiased (as possible) manner and FIX the problem. And if that means the SEC provides oversight of ratings agencies, then let’s do it…if it’s the right thing to do. For they who point the finger, let us ask “What did YOU do to ensure that YOU wouldn’t be caught again?” Yeah…that’s what I thought.

  7. L. F. File

    You know the GOP’s favorite economists are Chicago school types and none could be more revered lately than Eugene Fama. He is famous for his Efficient Market Hypothesis (EMH) which says that the prices in markets always reflect all the available information and therefore are the correct prices.

    Since the S&P downgrade of U.S. debt the price of U.S. Treasuries has soared and the markets have even listed negative interest rates on 5 and 7 year T-Bills. Unless Fama and EMH are wrong S&P are 180 degrees out of phase with reality. However, all the rating agencies are heavily dependent on EMH for their evaluation of securities. What a paradox!

    Keynesians are, of course, delighted at yet more evidence that EMH is dead.


  8. Brian Too

    Don’t even get me started. The rating agencies were an important piece of the puzzle as to why the 2008 financial meltdown occurred, and why so few saw it coming.

    Exactly what is their accountability? That they stand by their work until they are wrong?

  9. Nullius in Verba

    “Yet they are balking at an SEC requirement that they disclose errors in their calculations–claiming they can police themselves.”

    Amusing. And who else do we know who does that? As some would say, why should they make the data available to you when you’re only going to try and find something wrong with it?

    I’m all in favour of disclosure, but only as a general principle applied consistently and uniformly. Selective disclosure requirements are a problem, though.

    “What a paradox!”

    Not really. On this occasion, S&P’s rating is causing the reality rather than being caused by it. The markets know what they’re doing.

    “Exactly what is their accountability?”

    People stop paying them if they’re wrong too often.

  10. MrBloke

    The rating agencies have just gotten ‘too big for their boots’ and are upsetting powerful people by downgrading the creditworthiness of sovereign governments (governments!!!). Aforementioned powerful people now have them ‘in their sights.’

  11. MrBloke

    “….claiming they can police themselves’ Hmm, yes, let’s get rid of all law enforcement agencies today. Let we the public police ourselves aswell. That would work.


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About Chris Mooney

Chris is a science and political journalist and commentator and the author of three books, including the New York Times bestselling The Republican War on Science--dubbed "a landmark in contemporary political reporting" by and a "well-researched, closely argued and amply referenced indictment of the right wing's assault on science and scientists" by Scientific American--Storm World, and Unscientific America: How Scientific Illiteracy Threatens Our Future, co-authored by Sheril Kirshenbaum. They also write "The Intersection" blog together for Discover blogs. For a longer bio and contact information, see here.


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