Congressional Hearings on the S&P Downgrade?

Josh Wright —  10 August 2011

Just a month ago I linked a WSJ story highlighting criminal charges levied by the Argentine government against private consulting firms whose economists had reported inflation data.  Now, Financial Times reports that the Senate is considering hearings related to S & P’s downgrade of U.S. debt.  Wow.  Does anyone, anywhere — regardless of their position on whether S&P was right or wrong to downgrade the debt — think this is a good idea?  (HT:  Lawrence Cunningham tackles the First amendment implications)

4 responses to Congressional Hearings on the S&P Downgrade?

  1. 

    Absolutely they are a good idea.

    We need to know:

    1) What was the market position of their parent company McGraw Hill, prior to the downgrade, including all CDS positions.

    2) Are there any drawbacks to it currently being lawful for ratings agencies to trade on inside information on sovereign downgrades.

    Note that the current insider trading statutes only cover individuals, not corporations.

  2. 

    What percentage of Congressional hearings, particularly those floated to the press in advance, could be characterized as “a good idea”?

    • 

      I should say I would rather enjoy hearing it, because how can Senators spin it? If the S&P person talks at all coherently, s/he will explain why the dysfunction of the Senate (and House and President) have led to this decision, and that regardless of the precise amounts of the deficit in the out years the fundamental point/concern remains the same.

      And if the Senators try to grandstand they will be forced to explain how they are not dysfunctional, which will simply highlight that they are dysfunctional.

      And then on the point of what havoc this has wreaked, the S&P will be able to point to the next-day increase in prices (lower interest rate) of treasury bills that resulted from the “panic” of the downgrade.

  3. 
    Douglas B. Levene 10 August 2011 at 4:15 pm

    The usual complaint about the ratings agencies is that their ratings are compromised by a conflict of interest arising out of the fact the issuer pays for the rating. That does not seem to be an issue here. Now I suppose if there were some evidence that S&P was accepting payments from or otherwise acting in concert with someone (opponents of the president? a foreign power?) to reduce its ratings on US Government obligations, there might be some reason for a governmental investigation. Of course, no one has even suggested that any such thing has happened. What are we left with, then, other than a naked attempt to intimidate S&P?