from the uh-huh dept
So just a couple weeks after S&P’s (overhyped) downgrade of US debt, a story leaks that the Justice Department is investigating the S&P’s ratings system. The reports say that the Justice Department investigation began before the downgrade — which I absolutely believe to be true. It also notes that the focus is on conflicts of interest and a quote from an S&P managing director about not killing “the golden goose.”
But, here’s the thing. The timing of the news of the information getting out is certainly questionable. Even if the investigation is about mortgage debt, not sovereign debt, and even if it started before all this, just having it come out so soon seems like a clear shot at ratings agencies: downgrade the government and we’ll ramp up our investigations of you. Does an action like this give Moody’s or Fitch pause before changing their ratings on US debt? The report notes that it’s “unknown” if only S&P is being investigated, or if all three are, which certainly seems like fair warning: downgrade us and we’ll leak some dirty laundry.
As for the legitimacy of the investigation, again it seems to all go back to the fact that these firms ratings are seen — in part due to US regulations — as gospel fact, rather than just another opinion on value. That’s a problem. Perhaps there’s a case to be made that S&P’s ratings people believed one thing while publicly stating another, and that can be turned into a fraud claim, but it seems like it may be a difficult case. A rating is still an opinion and an opinion is protected free speech. Getting over that hurdle is possible, but difficult. It seems like a much more effective way to stop S&P from abusing the system is to stop forcing organizations to treat its ratings as gospel. I would bet that would do a lot more damage than any lawsuit or criminal action against the company or its execs.