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.