Best Served Cold: US Harrassment of S&P Begins

♠ Posted by Emmanuel in , at 8/16/2011 12:02:00 AM
Ah, revenge. In case you missed it, I guess that it was coming anyway: A few days ago prior to the US downgrade, I discussed how Italy had raided rating agencies S&P and Moody's over the appropriateness of their practices in assigning ratings to its sovereign debt. Aside from them insinuating that the Greek debt crisis would become a pan-Eurozone contagion, another investigation is looking into whether suspicious trading occurred around the time when agencies were making unfavourable comments about public finances. In that earlier post, I too wondered if the United States was about to embark on its own anti-rating agency pogrom.

Well, wait no more: the Securities and Exchange Commission is now looking not only into the legitimacy of the decisions surrounding the downgrade but also the possibility of insider trading in the run-up to the S&P announcement. Sounds familiar? It's as if the American authorities took a page out of the Italian playbook. From Mike's financial news:
The Securities and Exchange Commission is reviewing the method Standard & Poor’s used to cut the U.S.’s credit rating and whether the firm properly protected the confidential decision, according to a person with direct knowledge of the matter.

SEC inspectors are examining S&P’s policies for conducting such analyses and whether those procedures were followed when the New York-based firm downgraded the U.S.’s credit rating Aug. 5, said the person, who declined to be identified because the inquiry isn’t public.

S&P’s downgrade of the U.S. for the first time triggered an equity rout that wiped about $6.8 trillion from the value of global stocks from July 26 to Aug. 11. U.S. officials have said the downgrade was based on a flawed analysis which overstated U.S. debt by about $2 trillion, while S&P said the discrepancy doesn’t change projections that the U.S. debt-to-gross domestic product ratio will probably continue to rise in the next decade.
Consider it a not-too-subtle warning to Moody's and Fitch's about doing the same (or worse). While slow, I guess Sammy too was not above trying strong-arm tactics with these agencies.