Ed Sweeney, an S&P spokesman, declined to comment on the Springleaf transaction. "We believe our ultimate success will be driven by the value investors derive from our ratings and analysis," he said.
Ability To Tax
S&P says structured finance securities can deserve the top grades if they're backed by enough collateral to weather a U.S. default. The company said it downgraded the U.S., which, unlike corporations, has the authority to set tax rates and print money, because politicians are becoming "less stable, less effective and less predictable." Government debt of the world's largest economy is now rated AA+, the same as Belgium.
"I'm trying to sort out why debt backed by the ability to tax in the United States is rated lower than securities that are backed by no particular ability to have additional revenue," said John Milne, who oversees about $1.8 billion as chief executive officer of JKMilne Asset Management in Fort Myers, Florida, in a telephone interview on Aug. 23.
Treasuries have rallied since Aug. 5, even though the downgrade showed S&P considers the securities to be less reliable. Investor demand for 10-year government notes, the benchmark for everything from corporate borrowing to mortgage rates, drove yields as low as 1.9735 percent on Aug. 18.
Lost Trust
Investors lost trust that ratings are consistent across asset classes after the crisis, Milne said. Top-rated slices of commercial-mortgage-backed securities created since the market revived, known as CMBS 2.0, offer yields of 3.66 percent, or 2.31 percentage points more than Treasuries ranked one step lower by S&P, according to Barclays Capital index data.
"The pricing in the market suggests that really it does not believe the ratings anymore," said Satyajit Das, author of "Extreme Money: Masters of the Universe and the Cult of Risk" (FT Press, 2011), in a telephone interview on Aug. 23. "If the sovereign goes down the tubes, it's very difficult to see how these structures will be unaffected."
Deven Sharma, the president of S&P who's stepping down in September, has defended the company since taking over in 2007. It said on Aug. 22 that Sharma, 55, will be replaced by Citibank NA Chief Operating Officer Douglas Peterson, 53.
Lessons Learned
"Clearly, there were many lessons we learned out of the U.S. residential mortgage-backed securities," Sharma told Congress last month. S&P reviewed its methodologies and added checks to make sure ratings are "completely comparable" across asset classes and regions, he said.