MuniLand

Political heat at S&P for ratings downgrades?

By Cate Long
August 23, 2011

 

S&P replaces president after U.S. downgrade

The board of directors of McGraw-Hill met Monday and voted to oust Deven Sharma as president of their Standard & Poor’s rating division. This forced resignation comes approximately three weeks after S&P downgraded the debt of the United States. Jon Stewart, in the clip above, jokes about political pressure brought to bear on the company by the U.S. government. I think he is spot on with his humor.

Last week the U.S. Department of Justice just happened to discuss publicly an investigation of S&P and the other major raters about ratings assigned before the financial crisis to mortgage-backed securities, even though this investigation has been ongoing since 2009. Why the sudden need to reiterate this publicly? S&P’s downgrade was a brave action. It’s a pity that Deven Sharma has to pay for it with his job. As I wrote previously:

Standard & Poor’s took one of the bravest actions that I’ve ever seen a rater take when it downgraded the United States one notch. Furthermore, this marks a new beginning for accurate credit analysis and truth in fixed-income markets. Keep speaking the truth, S&P.

[...]

Bashing a rater for truth-telling is like punishing a child for speaking an unpleasant truth. It creates incentive to shade the truth, and the harsh truth is what is needed now more than ever.

I really hope the U.S. government had nothing to do with this sudden ouster of Sharma. Credit rating agencies must be rigorously regulated, but governments must stay out of the ratings process. If they do interfere, it is the worst kind of distortion in the functioning of markets which will, over time, further weaken investor confidence.

BTW: Chinese newspaper Xinhua calls for the reform of US credit rating agencies.

Prostitution in Vallejo increases post-bankruptcy

There was a fascinating story in Bloomberg yesterday about an increase in prostitutes in Vallejo, California after they cut 33% of their police force following their bankruptcy.

It turns out that apprehending prostitutes is labor-intensive:

Prostitution and drug dealing used to be fought by a crime- suppression unit of 12 officers and a sergeant, Nichelini said. Since it disbanded in 2010, arrests for solicitation have dropped from about 96 a year to about 24, he said.

The arrest rate “is very low because it’s labor intensive,” Nichelini said. “You have to have a minimum of five people to make the prostitution arrest, which is a misdemeanor and they’re out of jail within an hour.”

I’m not of the mind that prostitution is something that police need to spend all their time on, but law enforcement is one of the primary responsibilities of local government. The lesson of Vallejo and other squeezed municipalities is that there will be less of it. The chart above from the Bureau of Justice Statistics at the U.S. Department of Justice shows local governments are carrying the heaviest load in terms of paying for law enforcement.

The International Association of Chiefs of Police publishes data on police officer to population ratios. Data from this report shows that Vallejo is seriously understaffed given the ratio of police officers to population.

Citizen groups are trying to make up for a loss of police officers. Bloomberg reports that Vallejo has an extensive network of neighborhood watch groups:

Vallejo has 302 neighborhood-watch associations with 2,552 members, up from 10 groups with 60 people in 2009, said Tony Pearsall, executive director of the Fighting Back Partnership, a Vallejo-based nonprofit social-services group.

As muniland shrinks, we will see more of these adjustments and solutions. Vallejo is an extreme example, but reductions are happening everywhere. There will be less government. Let’s use what we have wisely.

@Twitter Talk

Darrell Issa @DarrellIssa Darrell Issa
If you haven’t had a chance to visit #DC (& wake up at an unholy hour) this sunrise over the Capitol VIDEO is for you:  bit.ly/pb4kns
Alex Howard @digiphile Alex Howard
Downloaded. RT @AmericaSpeaks We released a report today looking at participation in Federal Agencies’ #opengov plans:  bit.ly/poaFiR
Michael Pietronico @MillerTabak Michael Pietronico
sell side tax-free bond traders want cheaper prices to spur greater demand – in most cases they want you to cheapen your bonds (not theirs)
Patrick McGee @PatrickMcGee_BB Patrick McGee
Muni yields drop as ratios become more attractive.  Good chart from JPMorgan.  ow.ly/i/g7OW #muniland
James Ramage @JamesRamage_BB James Ramage
Largest deal of week arrived a day early. JPMorgan priced for institutions $494 mln of King County, Wash., sewer revenue & refunding bonds.

scott @clevoplanner scott

Urban gardens could sustain cities | The Columbus Dispatch  shar.es/H9laL

+Good Links+

Reuters: USA becomes Food Stamp Nation but is it sustainable?

Medical News Today: Medical Expenses Related To Obesity Costs States Billions

Credit Writedowns: On the State and Local Budget Crisis

Bloomberg View:   States Can Save Money Without Attacking Unions

Wall Street Journal:   As Investors Get Bit, States Feel Pain

Bond Buyer: Market Close: Munis Weaken a Little as Week’s Largest Deal Arrives

Bond Buyer: MSRB Files Supervisory Rule for Muni Advisors

Bloomberg: Jefferson County Won’t Accept Debt Deal That Rules Out Bankruptcy Filing

Christian Science Monitor: A boot camp for hard-core jobless

Freakonomics: Will Rahm Emanuel’s Merit-pay System Work Where Others Haven’t?

Comments
4 comments so far | RSS Comments RSS

“The board of directors of McGraw-Hill met Monday and voted to oust Deven Sharma as president of their Standard & Poor’s rating division. This forced resignation…”

Nonsense. Sharma has been scheduled and planning to leave since the beginning of the year; the Board simply confirmed that he now has a successor in Peterson.

Peterson has 25 years with Citi, has run several major initiatives, and is still C-level with the bank. The idea that these discussions haven’t been happening for months flies in the face of reality. (Just as the Justice Department investigations have been proceeding for months–as you well know.)

Seeing a conspiracy where there is one isn’t worthy of you. (If you want to do that, the conspiracy should be that S&P rushed its downgrade–so that it could claim that the DoJ investigation was “revenge.” At least there is evidence ["Oops, we made a $2T error. Oh, well, it's not material"] supporting that.)

Posted by klhoughton | Report as abusive
 

“The board of directors of McGraw-Hill met Monday and voted to oust Deven Sharma as president of their Standard & Poor’s rating division. This forced resignation…”

Nonsense. Sharma has been scheduled and planning to leave since the beginning of the year; the Board simply confirmed that he now has a successor in Peterson.

Peterson has 25 years with Citi, has run several major initiatives, and is still C-level with the bank. The idea that these discussions haven’t been happening for months flies in the face of reality. (Just as the Justice Department investigations have been proceeding for months–as you well know.)

Seeing a conspiracy where there is one isn’t worthy of you. (If you want to do that, the conspiracy should be that S&P rushed its downgrade–so that it could claim that the DoJ investigation was “revenge.” At least there is evidence ["Oops, we made a $2T error. Oh, well, it's not material"] supporting that.)

Posted by klhoughton | Report as abusive
 

“The board of directors of McGraw-Hill met Monday and voted to oust Deven Sharma as president of their Standard & Poor’s rating division. This forced resignation…”

Nonsense. Sharma has been scheduled and planning to leave since the beginning of the year; the Board simply confirmed that he now has a successor in Peterson.

Peterson has 25 years with Citi, has run several major initiatives, and is still C-level with the bank. The idea that these discussions haven’t been happening for months flies in the face of reality. (Just as the Justice Department investigations have been proceeding for months–as you well know.)

Seeing a conspiracy where there is one isn’t worthy of you. (If you want to do that, the conspiracy should be that S&P rushed its downgrade–so that it could claim that the DoJ investigation was “revenge.” At least there is evidence ["Oops, we made a $2T error. Oh, well, it's not material"] supporting that.)

Posted by klhoughton | Report as abusive
 

oops. sorry about the triple; please delete two

Posted by klhoughton | Report as abusive
 

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