The real reason for the credit downgrade will be a subject for discussion and debate, but this information must be considered in this debate:
Here.
On May 18, the SEC’s five commissioners voted unanimously to propose new, tougher regulations for credit rating agencies. This was the culmination of an initiative that was approved by the commissioners three years ago, in June 2008. The new proposed rules, which are over 500 pages and are now open for public comment, would implement certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and enhance the SEC’s existing rules governing credit ratings that are registered with the SEC as Nationally Recognized Statistical Rating Organizations (“NRSROs”). Among other things, under the SEC’s proposals, NRSROs would be required to:
Report on internal controls;
Protect against conflicts of interest;
Establish professional standards for credit analysts;
Publicly provide – along with the publication of the credit rating – disclosure about the credit rating and the methodology used to determine it;
Enhance their public disclosures about the performance of their credit ratings; and
Require disclosure concerning third-party due diligence reports for asset-backed securities.
During the debt ceiling debate, here is what Robert Reich said about S&P:
But Standard & Poor’s has gone a step further: It’s warned it might lower the nation’s credit rating even if Democrats and Republicans make a deal to raise the debt ceiling. Standard & Poor’s insists any deal must also contain a credible, bipartisan plan to reduce the nation’s long-term budget deficit by $4 trillion — something neither Harry Reid’s nor John Boehner’s plans do.
Is the S&P flexing its capitalist muscle in the face of SEC intentions to reign in the power that the credit rating agencies have used with criminal negligence?
Standard & Poor’s didn’t exactly distinguish itself prior to Wall Street’s financial meltdown in 2007. Until the eve of the collapse it gave triple-A ratings to some of the Street’s riskiest packages of mortgage-backed securities and collateralized debt obligations.
Standard & Poor’s (along with Moody’s and Fitch) bear much of the responsibility for what happened next.
Standard & Poors apparently feels no reason, politically, to fear this White House. We'll see if their arrogance plays out as they expect.