S&P To Congress: Hands Off Our Cookie Jar
Standard & Poor's fired a shot across the bow of congress with this statement. "'We are reaffirming the criteria that supports the 'AAA' ratings on the housing GSEs, given the proposed legislation that we have seen thus far,'said Victoria Wagner of the S&P."
"The ratings currently incorporate both the financial assessment and public policy role of the GSEs. 'Implied guarantee'means something in the capital markets,' explained Michael DeStefano, chief quality officer for Financial Institutions Ratings at Standard & Poor's."
The S&P is obviously saying that should congress stop the guarantee, the GSE's will lose their rating and the mortgage scheme will collapse. Nothing new to this blog, but interesting that the ratings firm took this position when nobody knows what the legislation will look like. I expect they are trying to influence those writing the policy.
9 Comments:
S&P does not have an axe to grind or a cannon to fire. They are just stating a simple fact. Essentially, all they are saying is that the current AAA rating is based on a particular set of criteria, and if the criteria changes, so will the rating.
S&P is simply a rating agency, they have no financial interest in whether GSE's go from AAA to C.
And of course nobody connected with the S&P ratings board would ever dream of front-running their credit worthiness ratings on companies.. because that would be... well, not illegal, but unethical. and i'm sure nobody would ever give in to the massive profit potential such behavior could produce, especially since there is no legal penalty even if it were all discovered.
kinda like the professor at michigan who headed the consumer confidence study- he was forced to resign after admitting he made millions frontrunning his survey's results for the last 15 years.
If somebody at S&P wanted to front run a ratings action to make a quick buck, there would certainly be more inconspicuous ways of doing it than trying to blackmail Congress.
You don't need to rationalize a non-sensical conspiracy theory to burst this real estate bubble when it is about to pop on its own.
Is it true that Freddie/Fannie MBSs actually have a disclaimer on them that states that they are not backed by the US Gov't? I have a mental image of a "Surgeon General" type warning generally ignored by the consumer of these products (who will then turn around and sue should anything go wrong, bien sur)
Why is S&P reiterating the criteria? Is this something that is done periodically or systematically? Usually, public statements have a purpose.
Ben
Congratulations! for the article appearing on financialsense.com website.
intially i looked at some links and all of them were pointed to this blog. The I looked at the author. woh! it was ben.
Keep it up.
Ben, Congratulations on your essay on financialsense.com, an excellent piece. I'm a big fan of that site.
This is getting really exciting. After the Fed refuses to do anything about the looming credit crisis and Fannie Mae certainly won't do anything about the excess liquidity, the market, in the form of S&P steps up and adds a sense of realism.
I can see exactly why they are doing it. They are putting their name (directly or indirectly) on the quality of the debt out there and thus they need to see exactly where things actually stand. Suddenly that isn't a silly question and the answer isn't quite what everyone expects it might be... this is the start of the end.
As a former communications director at S&P, I can confirm that LIttle Silvered is right. S&P has no axe to grind. It offers its analysis as opinions on the creditworthiness. The GSE creditworthiness has always been based on an assumption -- implicit, not explicit -- that the Treasury would not allow GSEs to fail. If Congress changes the rules to explicitly state that it will not permit Treasury to support GSEs, then the AAA rating would logically be in jeopardy.
The people at the rating agencies are generally excellent, intelligent, ETHICAL, analysts and would never try some of the unethical and illegal things that posters to this blog are suggesting.
If you want to learn more about the people behind the ratings, consider subscribing to my newly launched newsletter/blog/podcast, RatingAgency.com. More information is available at www.ratingagency.com.
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