S and P and the SEC

http://www.futureofcapitalism.com/2013/02/s-and-p-and-the-sec

The Wall Street Journal has a fine editorial and Bloomberg has a fine news article highlighting the irony that even as the Justice Department is suing Standard and Poor's for doing a bad job of rating mortgage-backed securities in the run-up to the financial crisis, the Securities and Exchange Commission is essentially giving S&P its stamp of approval, and mandating its use, as a "Nationally Recognized Statistical Ratings Organization."

The Journal editorial asks, "as a modest first step before suing a company for $5 billion, shouldn't the government at least stop mandating its products."

The Bloomberg article outlines the barriers that the SEC imposes on companies that might want to compete with S&P, Moody's, and Fitch:

Ann Rutledge, a structured finance specialist, has watched her application to become an NRSRO languish at the SEC for 20 months. ...

Rapid Ratings International Inc., a New York-based firm that uses quantitative models to grade securities, hasn't applied for the NRSRO designation, which would allow investors to buy securities rated by the company to meet regulatory requirements, because its costs would increase by 40 percent to hire compliance staff, James Gellert, chief executive officer, said in a Jan. 7 telephone interview. ...

Meredith Whitney Advisory Group LLC, headed by the former Citigroup Inc. analyst, made a presentation to the SEC in November 2010 seeking NRSRO status and has yet to be approved, according to the SEC website. A woman who answered the phone in the company's New York office Feb. 4 declined to comment on its application.

Also from the Bloomberg article:

Moody's and S&P are able to raise prices because the two are a "natural duopoly," Warren Buffett, the billionaire chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., told the inquiry commission in 2010. Berkshire is Moody's largest shareholder, with a 12.8 percent stake.

by Editor  |  Feb 6, 2013 at 1:08 pm Related Topics:  Capital Markets Regulation, Housing, SEC, Warren Buffett receive the latest by email: subscribe to the free futureofcapitalism.com mailing list