Too Little, Too Late Again
Yesterday, the Government announced a settlement with S & P and its parent company McGraw-Hill in which the ratings agency effectively conceded that it violated its own policy by letting business considerations influence the ratings it gave to issues of mortgage-backed securities and collateralized debt obligations. The $1.375 billion settlement is ostensibly “historic” since it represents the first such admission of wrong doing by a ratings agency in a case brought jointly by the Department of Justice and 19 states’ attorneys general. New York did not participate in the litigation.
Like so much else in relation to the Government’s response to the mortgage meltdown, there’s less here than meets the eye. S & P’s major concession was that it will do what it already is publicly committed to, which is objectively rate the issues it assesses so that investors like credit unions can invest with confidence. However, does anyone really think that credit rating agencies, which are still dependent on doing business with debt issuers to stay in business, won’t continue to feel pressured to let business relationships influence their ratings? Remember that one of the most important, and in my mind silliest, Dodd-Frank reforms is to mandate that financial institutions, including credit unions, not rely exclusively on credit agency judgments when making investment decisions. But at the end of the day, credit rating agencies will continue to be relied on. After all, your average investor simply doesn’t have the expertise that good credit rating agencies do to make judgments about the quality of debt they are buying.
Bottom line, this is yet another example of how credit unions were more impacted operationally as a result of the mortgage meltdown than were many of the institutions responsible for causing the mess. Oh well.
Meet the New Boss
Bronx Assemblyman Carl Heastie was elected to replace Sheldon Silver as Speaker of the New York State Assembly. As such, he becomes one of the three most important people in State Government. The Speaker has been a supporter of credit unions in the past, and the Association looks forward to working with him going forward.