Standard & Poor's: Downgrade Backlash Puts Credit Rating Company Under Microscope
Senate committee gathers information as critics fire verbal volleys.
Aug. 8, 2011 — -- First, Standard & Poor's downgraded U.S. debt from AAA to AA+. Now critics in and out of government are returning fire -- downgrading the credit rating company rhetorically and perhaps soon putting it under a more official microscope.
Even as S&P issued new rating downgrades from AAA to AA+ against municipal entities backed by federal leases in Miami, Atlanta and Tacoma, Wash., according to Bloomberg, the Senate Banking Committee was looking at S&P, ABC News has learned.
A committee aide said the Democrat-controlled body "is looking into the issue and gathering more information" but emphasized that so far there was no official committee probe or investigation.
In Detroit today, as homeowners about to lose their houses to foreclosure tried to restructure their toxic mortgages once rated AAA by S&P, a populist backlash was forming against one of the most powerful economic voices in this country.
"What credibility does S&P have as a credit agency when they did such a terrible job?" asked Peter Lawler, a homeowner.
ABC News has received angry emails from the outraged, who've called the S&P downgrade "ridiculous," "unpatriotic," saying the company should be ashamed.
"Credits agencies are a scam," wrote Judy from Georgetown, Texas.
So who are these guys who make the decisions some Americans seem so angry about?
Standards & Poor's Rating Service has been grading corporate bonds for 90 years. Today, it has 1,226 employees and does $75 million in business every year in more than 20 countries.
But Jules Kroll, one of its main critics, who started his own, smaller rating service, says S&P is not big enough to judge 100 countries because it has only about 100 actual analysts.
"Doing analysis of the economy of the United States and its likelihood of default is something that requires enormous resources that go far beyond the resources of S&P," Kroll said.
S&P missed the Enron crisis, giving the failed company high ratings until the day it went bankrupt. In 2008, it gave an AAA rating to toxic waste mortgages. Then, it gave an A rating to Lehman Brothers just before the investment bank went under. It also failed to sound the warning about the serious economic troubles in Ireland, Spain and Greece.
New York University professor Lawrence White said S&P had a valuable opinion, it just carried too much power.
"I wish that S&P were just another voice among the multitude of voices rather than this specially enhanced voice," White said.
Despite the anger at S&P, critics have argued that it is merely the messenger, and that the government is to blame for not getting its fiscal house in order sooner.
"If we were running our affairs properly, we wouldn't have to worry about S&P, Moody's and Fitch," said Paul O'Neill, referring to the three major rating companies. O'Neill served as Treasury secretary under President George W. Bush.
ABC News' Sunlen Miller, Michael S. James and Eileen Murphy contributed to this report.
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