S&P Ratings: ‘You Didn’t Believe Us, Did You?’

What are the most important issues you face?

I imagine most would think that physical, mental and emotional well being would rank highest on your list.

Imagine, then, the individuals to whom you went for independent and objective advice on those very personal issues were to inform you that their insights were, in fact, highly conflicted and their proclamations and prescriptions were actually little more than “puff.” You would probably be more than a little angry.

What About Your Financial Well Being?
Can you imagine if individuals or entities proffering financial advice that has been perpetually presented as independent and objective were also exposed as charlatans offering perspectives that were also little more than “puff?” Think you might be a little pissed off?

Well, not much surprises me anymore but in my Inbox entitled, You Cannot Make This Stuff Up, I read a story that relegates the entire credit-ratings process on Wall Street to little more than a joke -- and a bad one at that. How so? Let’s navigate an incredibly bizarre development in a case being brought by Uncle Sam against Standard and Poor’s. The WSJ reports:

Standard & Poor’s Ratings Services has long declared that its letter-grade ratings are independent and objective, part of a bid to allay concerns over its business model.

Standard & Poor’s, like all major credit-rating firms, is paid by issuers to rate the securities that they sell.

Regulators, lawmakers and investors have said the payment system presents a potential conflict of interest that could provide an incentive for Standard & Poor’s and its rivals to cater to bankers and other issuer clients.

But Standard & Poor’s , a unit of McGraw-Hill Cos., has long pushed back, saying its standards of objectivity and independence mitigate potential conflicts of interest.

Now, lawyers defending the company against the Justice Department’s recent civil lawsuit say that statements about independence and objectivity are “puffery” and were never meant to be taken at face value by investors.

Not a lot of reason to read the rest of that article.

Pantheon Of Swindlers
With that simple statement, the lawyers for S&P placed their client, the industry-backed ratings process and all those involved in the frauds facilitated by phoney ratings into the pantheon of swindlers. How many trillions of dollars worth of securities rated by S&P were given a stamp of approval based on a premise of independence and objectivity? Let’s not give the folks on Wall Street or in Washington a pass here. The industry has utilized the imprimatur of independent and objective credit ratings to distribute a whole lot of overpriced offerings over the years.

As for Washington, you'll have to spend quite some time reviewing Dodd-Frank to see meaningful developments regarding reform of the credit-ratings process. I'll save you the time. There's nothing of real substance in there on the topic.

Meningless Integrity
Finally, the statement made by S&P’s lawyer is like throwing another log on the fire that is incinerating any sense of meaningful integrity within the Wall-Street-Washington conspiracy.

Puff . . . puff . . . up in smoke!

You may want to do the same with any credit ratings that cross your desk from S&P and its industry brethren at Moody’s and Fitch.

Navigate accordingly.

Disclaimer:
I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.