Fox News Objects To S&P Downgrade Inquiry By Screaming "Witch Hunt"


Fox News personalities have expressed outrage that Congress is reportedly considering investigating Standard & Poor's (S&P) controversial decision to downgrade its U.S. credit rating. But S&P has significant credibility issues, and executives at rating agencies - including S&P - have routinely testified before Congress, including about their role in the Enron scandal and the financial crisis.

As Congress Prepares To Investigate S&P's "Downgrade" Of The U.S. Credit Rating ...

AP: Senate Moving To Investigate S&P's Downgrade Decision. On August 8, the Associated Press reported that the Senate Banking Committee "is gathering information on Standard & Poor's decision to issue the first-ever downgrade of the government's credit rating." [Associated Press, 8/8/11]

... Fox News Shouts Intimidation And "Witch Hunt" ...

Fox's Cavuto On Possible Investigation Of S&P: "You Can't Threaten Everyone." From host Neil Cavuto's discussion of a possible Senate investigation of S&P with Larry Sabato on Your World:

NEIL CAVUTO: Larry, I guess shoot the messenger and, and, and kick 'em when they're down, not that S&P doesn't deserve some roughin' up here, they've not exactly been Nostradamus, but where is this all going?

LARRY SABATO, UVA CENTER FOR POLITICS: Neil, I think there is a hidden message here. The Senate, of course controlled by Democrats, has listened carefully to the senior people at S&P. They've said, I believe, one in three chance of a further downgrade, so, they're sending them a message: This is what you are going to get, except more of it, if, in fact, you have a further downgrade.

CAVUTO: Then what do you do if Moody's goes along, and Moody's has hinted that they just might. You can't, you can't threaten everyone.

SABATO: Well they probably watched that AMC Mob Week, hosted by Rudy Giuliani. You can do a lot if your organization is big enough. Maybe they're going to go after everybody, Neil. [Fox News, Your World with Neil Cavuto, 8/9/11]

Hannity: Congress Is Trying To "Intimidate" S&P. During a discussion of S&P's decision to downgrade the U.S. credit rating, Sean Hannity said:

SEAN HANNITY: Now they want to investigate, and I would use the word intimidate Standard & Poor's and Moody's. They've been lobbying them for a long time. Look, these credit agencies were very clear, they were going to do this, Standard & Poor's said within 90 days are better than 50 percent chance that they're going to do this. [Fox News, Hannity, 8/9/11]

Fox's Steve Doocy: The "Senate Banking Committee Could Be Turning The Screws To The S&P." After Fox & Friends co-host Steve Doocy said that the U.S. Senate Banking Committee "could be turning the screws to the S&P," Fox News' Andrew Napolitano questioned any effort to investigate S&P's decision, saying, "What S&P does is express an opinion." The discussion continued:

STEVE DOOCY: Now, just because the Democrats on this Senate Banking Committee might not agree with it, does that mean they can still call them up and say, OK, I want to know the answer to this?

ANDREW NAPOLITANO: Unfortunately they can. The one thing that politicians are superb at is pointing fingers.

DOOCY: Yes they are. [Fox News, Fox & Friends, 8/9/11]

Fox's Willis: "Is This A Witch Hunt?" On her Fox Business show, Gerri Willis said of the Senate Banking Committee's proposed investigation into S&P: "Is this a witch hunt? Clearly it is being led by the Democratic majority on that committee." [Fox Business, The Willis Report, 8/9/11]

... Even Though S&P Lacks Credibility ...

Congressional Commission: Rating Agencies "Key Enablers Of The Financial Meltdown." From the January 2011 Financial Crisis Inquiry Report:

We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies [Standard & Poor's, Moody's, and Fitch Ratings] were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms. [The Financial Crisis Inquiry Report, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, January 2011, emphasis in original]

Initial S&P Downgrade Document Included "$2 Trillion Mistake." From an August 5 New York Times report:

S.& P. had prepared investors for the downgrade announcement with a series of warnings earlier this year that it would act if Congress did not agree to increase the government's borrowing limit and adopt a long-term plan for reducing its debts by at least $4 trillion over the next decade.

Earlier this week, President Obama signed into law a Congressional compromise that raised the debt ceiling but reduced the debt by at least $2.1 trillion.

On Friday, the company notified the Treasury that it planned to issue a downgrade after the markets closed, and sent the department a copy of the announcement, which is a standard procedure.

A Treasury staff member noticed the $2 trillion mistake within the hour, according to a department official. The Treasury called the company and explained the problem. About an hour later, the company conceded the problem but did not indicate how it planned to proceed, the official said. Hours later, S.& P. issued a revised release with new numbers but the same conclusion.

In a statement early Saturday morning, Standard & Poor's said the difference could be attributed to a "change in assumptions" in its methodology but that it had "no impact on the rating decision." [The New York Times, 8/5/11]

Krugman: "It's Hard To Think Of Anyone Less Qualified To Pass Judgment On America Than The Rating Agencies." From an August 5 post by economist Paul Krugman:

[I]t's hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point -- then went ahead with the downgrade.

More than that, everything I've heard about S&P's demands suggests that it's talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future -- but there's no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.

In short, S&P is just making stuff up -- and after the mortgage debacle, they really don't have that right.

So this is an outrage -- not because America is A-OK, but because these people are in no position to pass judgment. [The New York Times, 8/5/11]

Rating Agencies Criticized For Handling Of Enron, WorldCom Ratings. From a November 22, 2004, Washington Post article:

WorldCom rose to prominence through voracious acquisitions, including the bold 1998 purchase of MCI, the District-based long-distance telephone company. And it couldn't have done it without the rating companies. WorldCom borrowed money through the sale of bonds, which the rating firms approved by giving them good grades, a signal that they were relatively safe investments.

As it turned out, nothing could have been further from the truth. But the rating firms were among the last to recognize it. It wasn't until weeks before WorldCom disclosed massive fraud and filed the biggest bankruptcy in U.S. history in 2002 that the credit raters finally cut the firm's debt to junk status.

The rating companies say they are not in the business of detecting fraud; rather, they say they give an opinion of the creditworthiness of a company, municipality or nation. But some critics say the WorldCom case highlights a broader problem: that the world's big three credit raters -- Moody's Investors Service, Standard & Poor's and Fitch Ratings -- have become some of the most important gatekeepers in capitalism without the commensurate oversight or accountability. [The Washington Post, 11/22/04]

In 2002, The New York Times reported:

Credit-rating agencies, the independent securities analysts that pass judgment on a company's financial fitness, saw signs of Enron's deteriorating finances by last May. But the agencies -- Moody's Investors Service, Standard & Poor's and Fitch Ratings -- did little to warn investors until at least five months later, long after more problems had emerged and Enron's slide into bankruptcy had accelerated. [The New York Times, 2/8/02]

... And Ratings Agencies Have Routinely Testified Before Congress About Their Ratings

2002: S&P Testified Before Congress On The Ratings Agencies' Role In The Enron Scandal. The Associated Press reported in a March 21, 2002, article:

Members of the Senate Governmental Affairs Committee asked officials of the three big credit-rating agencies Wednesday why they maintained high ratings for Enron even as its stock plummeted last year, up until four days before its bankruptcy filing Dec. 2.

Many Wall Street financial analysts recommended that investors buy Enron stock almost until it went under - an issue previously examined by the committee.

Officials of credit-rating agencies testified at Wednesday's hearing that Enron executives misled them about partnerships used to conceal massive debt. Senators criticized them for not questioning the finances of the energy-trading company more closely.

The complex web of partnerships, improperly buttressed by Enron stock, ultimately brought down the Houston-based company.

John Diaz, a managing director of Moody's, testified that Enron executives lied to his agency about the partnerships in the fall of 1999 as Enron was pushing for an upgrade of the rating of its long-term debt. "We now know that material information was missing" and that Enron failed to disclose the existence of three of the partnerships, Diaz said.


Ronald Barone, a managing director of Standard & Poor's, said: "This was not a ratings problem. It was a fraud problem. ... We're not forensic accountants." [Associated Press, 3/21/02, via Nexis]

2007: S&P Testified Before Congress About The Ratings Agencies Role In The Mortgage Crisis. From a September 26, 2007, article on

Lawmakers grilled credit rating agency executives Wednesday about their role in the subprime mortgage meltdown, particularly their cozy relationship with issuers of some of the securities that soured during this summer's crisis.

Testifying before the Senate Banking Committee, representatives from two of the largest ratings firms - Moody's (Charts) and Mc-Graw Hill's (Charts, Fortune 500) Standard & Poor's - conceded the companies had made mistakes but defended the integrity of their ratings process and promised improvement.

"We understand that certain things did not work and we are looking at root causes," said Vickie Tillman, executive vice president for credit market services at Standard and Poor's.

Credit rating agencies have shouldered blame for the subprime crisis that roiled financial markets. Critics have claimed that the agencies were blinded by cozy relationships with debt issuers. Typically underwriters pay rating agencies to grade debt they are issuing.

"It seems as if agencies were playing both coach and referee in the debt rating game," Sen. Robert Menendez (D-N.J.) said during the hearing. [, 9/26/07]

2008: S&P Testified Before Congress About The Ratings Agencies Role In The Financial Crisis. An October 22, 2008, New York Times article - headlined "Credit Rating Agency Heads Grilled by Lawmakers" - reported:

Conflicts of interest were largely responsible for the disastrous performance of credit rating agencies in assessing the risks of mortgage-backed securities, two former high-ranking officials at Moody's Investors Service and Standard & Poor's said Wednesday in Congressional testimony.

The securities issuers pay the agencies to issue ratings, and the agencies' interests can eclipse those of investors, Jerome S. Fons, who was the managing director for credit policy at Moody's until 2007, told the House Committee on Oversight and Government Reform. [The New York Times, 10/22/08]

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