Who Are These People, Anyway?

The news that France is demanding accountability from the Standard and Poor's for the company's error on France's credit rating was welcome indeed. When Standard and Poor's started to downgrade so many municipal bond ratings -- including those for revenue bonds -- I started to question the validity of Standard and Poor's itself.

I knew about the credit rating agencies when I studied for my Series 7 license, but I was only taught about the slight differences in their ratings, not their history or ownership. The ownership of Standard and Poor's came out during the recent financial crisis and it turns out that it is not independent, as most of us assumed, but a division of the for-profit McGraw-Hill. Sorry, but I have a problem with that. I know, of course, that even non-for-profit organizations need to make a profit, which can be presented in different ways. But for-profit is blatant, and I can't help but wonder why Standard and Poor's, in particular, has been getting so much ink about the ratings of America's municipalities and European countries. I once had a sociology professor who was adamant that the idea of a balanced budget in government is a sacred cow. I understood what he meant. Taxes could be raised. Monetary policy could be changed. The government (at least at that time) was not going to go out of business, New York City's financial woes under Mayor Abe Beame notwithstanding. Besides, New York City survived.

So who is Standard and Poor's to harp on the credit ratings of France or Italy or Puerto Rico? I bring up Puerto Rico because my husband and I own several Puerto Rico bonds, most of which are revenue bonds. I could never understand why the ratings of those bonds have gone down. It's not as if Puerto Rico is planning to do away with tolls and other sources of revenues, which can be used to pay back the bond holders. Au contraire, some non-toll bridges and highways are under consideration to reinstate tolls, which would bring some revenue to the city and state, but would just increase traffic to already heavily traveled roads.

It seems to me that Standard and Poor's has been engaging in acts of financial terrorism by downgrading bonds that are backed by the full faith and credit of cities and states. I, for one, do not believe that California is going go bankrupt, any more than I think that the U.S. government will. Yes, there are huge deficits, but it's not as if a bank is going to foreclose on the property. They only do that for little people. Standard and Poor's must want more "market share" in the credit rating business and, thus, more revenues. If they're ruthless about getting it, well, that's business. If anyone else has another theory, I'd love to know about it.