Tuesday, February 05, 2013
Continuing Lawsuits Against Credit Ratings Agencies
Lawsuits are no fun when you're a target. Ask the credit ratings agencies like S&P; the federal government is suing them for damages from ratings on subprime mortgage investments. Reading past the article's discussion of conflicts of interest and the housing debacle is a necessary task in seeing through a smokescreen.
The government has little interest in recovering real damages. It has a very strong interest in pressuring rating agencies not to downgrade their ratings of Treasuries. Lawmakers have decided to ignore the legal debt ceiling, tempting rating agencies to downgrade Uncle Sam's credit. Moody's hinted that a ratings downgrade was an option after the fiscal cliff standoff but so far has not followed through with action. I believe it will continue to hold its current rating and "negative outlook" admonishment to avoid being sued by the government. Moody's has little to fear as long as Berkshire Hathaway is a major shareholder and Warren Buffett remains a top political campaign bundler.
BTW, Europe goes through similar motions about stopping conflicts of interest at credit ratings agencies. Nothing real will change as long as rating agencies know they must support strong ratings for weak sovereign debt, otherwise legal action would indeed be serious.