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NYT Tells Credit Rating Agencies To Butt Out

From the always subtle New York Times:

House Panel Plans to Question Rating Agencies Over Downgrade Threat to U.S.

July 26, 2011

Credit rating agencies have been questioning Congress about its credibility. Now, Congress gets to turn the tables.

A House Financial Services oversight panel on Wednesday will give lawmakers their first chance to ask senior executives at Standard & Poor’s and Moody’s about their judgments in putting the government on notice that its top-flight credit rating is at risk.

The hearing had been called to discuss the impact of new financial regulations on the major rating agencies. But as the possibility of a credit downgrade becomes increasingly likely, representatives from both political parties are expected to take a closer look at the record of those issuing the reviews of United States government debt

Representative Barney Frank, the ranking member of the House Financial Services Committee, who is a Massachusetts Democrat, said he believed the rating agencies had made flawed assessments on ratings of state and municipal debt over the years. Now, he said, he thinks they may be misjudging Congress’s political will to rein in the deficit.

“I don’t think that in judging how the political system is going to respond, going forward, that they have any credibility,” he said. “They are terrible at that.”

Are we reading this right? Is Mr. Frank claiming that Congress wants to rein in the deficit? And he is saying the rating agencies don’t have any credibility?

Lest we forget, at the height of the housing meltdown in September 2008, the highly credible Mr. Frank pronounced: "Fannie Mae and Freddie Mac are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Even as Democrat and Republicans work on competing plans to get the nation’s financial house in order, the judgments of the major credit rating agencies hang over any deal. Moody’s, Standard & Poor’s and Fitch Ratings have all warned that they might lower the American credit rating. S.& P. has gone a step further, suggesting that the uncertain political climate could lead it to take action by mid-October even with an agreement to cut the deficit.

S.& P. has indicated that the Obama administration and the Congress will need a “credible plan” to cut the deficit by $4 trillion to keep its top rating.

A detail the news media has studiously ignored. Instead, they have tried to pretend that they are only concerned about Congress not raising the debt ceiling, so that the deficit can grow even more.

Few believe that such a plan is now possible. Critics of the rating agencies charge that they are inserting themselves in a highly charged political debate

In other words, now that these agencies are starting to complain about government spending, the New York Times is telling them to shut up.

Ratings can be useful in helping investors evaluate the performance of complex and lightly traded securities. But, ever since the financial crisis, the ratings agencies’ own track record has come under attack

Or, to be more precise, since they have begun to talk about the need for the US to cut its deficit their track record has come under attack.

Meanwhile, there is the topic that the hearing was originally called to address. As part of the Dodd-Frank Act, lawmakers pushed for new rules that stopped requiring the use of ratings, forcing investors to do their own analysis instead. But banks and their regulators have fiercely resisted the rules, saying that putting that rule into effect is difficult.

On Monday, for example, the Federal Reserve identified 46 instances in its bank regulation that required investors to rely on credit ratings, but it did not map out how it would adapt those rules so that ratings were no longer necessary. The Securities and Exchange Commission also proposed Tuesday that mortgage bond and other issuers make certain certifications in an effort to reduce investors’ reliance on ratings.

Lawmakers said they planned to question ratings agency officials, financial regulators and other experts on efforts to de-emphasize the importance of credit ratings in the year since the Dodd-Frank rules were passed.

In other words, these hearings have been called because Dodd-Frank effectively cuts off their source of income by doing away with the requirement on banks to use credit ratings.

So it’s no wonder they are now doing everything they can to placate the Democrats and the Obama administration. They are under their thumb. They are fighting for their financial lives.

This article was posted by Steve on Wednesday, July 27th, 2011. Comments are currently closed.

3 Responses to “NYT Tells Credit Rating Agencies To Butt Out”

  1. retire05 says:

    Barney Frank thought these credit agencies were the cat’s meow when they were giving great ratings to the morgage backed securities. Now, not so much. They were wrong, and so was Frank, who to this day has accepted no responsibility for the damage he, and Chris Dodd, did to this economy.

    And what will we see from Frank-Dodd? According to a good friend who is the president of my bank, small, local banks that have traditionally served areas that the big banks were not interested in are going to go the way of the caveman.

  2. Howard Roark says:

    Barney Frank is the quintessential Roman emperor, driven mad from a lifetime of excess, perversion, and genes, trying to foist upon a nation the same suicidal ends he wishes for himself.

  3. tranquil.night says:

    Rep. Ryan, our good friend – do you know what a corollary to your talking point conclusion that “We need to elect a new president ultimately” to justify your support of the Boehner plan?

    “..Therefore we must submit to the fearmongering of a soft tyranny.”

    Unacceptable to us.

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