Downgrade Questioned
“Why S&P? They didn’t do anything that Moody’s or Fitch didn’t do,” said Peter Schiff, chief executive officer of the brokerage firm Euro Pacific Capital Inc, based in Westport, Connecticut, in a telephone interview. “The whole thing to me stinks and looks like it’s their way of getting back at S&P.”
Holder, the attorney general who has been in the Obama administration since 2009 as officials first started figuring out what to do about the ratings companies, denies any link.
“They did what they did assessing what the creditworthiness was of this nation,” Holder said at a Feb. 5 press conference in Washington announcing the S&P suit. “But they are not in any way connected.”
The administration’s criticism of the quality of S&P and other raters’ products predates the downgrade, starting soon after Obama took office.
“Credit ratings often failed to accurately describe the risk of rated products,” the Treasury Department said in the financial regulation White Paper presented by then-Treasury Secretary Timothy F. Geithner to lawmakers.
Administration Proposal
The white paper, developed in the first months of 2009, Obama’s first year in office, would serve as the basis for the congressional proposals to come. One stated goal was to “reduce the incentives for over-reliance on credit ratings.”
The administration proposed the creation of an office to supervise ratings firms at the Securities and Exchange Commission. It would require the companies to disclose preliminary ratings of companies and use different symbols for structured products, to make investors more aware of the risks that may be associated with asset-backed securities and similar financial instruments.
S&P, which had made internal changes before Obama took office to address its failures in the subprime mortgage crisis, supported parts of what would become the Dodd-Frank Act. Aimed at preventing a repeat of the $700 billion bailout of the banking industry, the law created a mechanism to seize and wind down the largest banks, the Consumer Financial Protection Bureau and a new regulatory structure for the $639 trillion global swaps market.