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Tuesday, August 9, 2011

Credit Rating Companies as Interest Groups

Politico reports (h/t Rio):
Standard & Poor’s is supposed to be an independent credit rating arbiter largely immune from day-to-day political warfare.

At the same time, the company employs a powerful governmental lobbying operation – and one that’ll likely be used frequently following its unprecedented step this weekend of downgrading the nation’s credit rating from pristine AAA to slightly tarnished AA+.

A division of McGraw-Hill, Standard & Poor’s has long been an active advocate for itself on Capitol Hill, lobbying for years on various issues that affect its own business fortunes. McGraw-Hill has spent $600,000 overall this year through June 30 on federal lobbying efforts on top of more than $11 million from the past decade, federal disclosure records indicate.

McGraw-Hill’s federal lobbying disclosures list “Credit rating agency issues,” “S&P issue,” “SEC issues” and “the regulation of nationally recognized statistical rating organizations” as topics on which it lobbied members of Congress. McGraw-Hill employs the Podesta Group and Nappi and Hoppe.

And although the company does not operate a federal political action committee, Standard & Poor’s President Deven Sharma, like dozens of other company employees, has personally donated money to federal political interests since the 2008 election cycle, including $1,000 to Sen. Rob Portman (R-Ohio).
AP reports:

The three major credit rating companies poised to decide whether to downgrade the nation's top-ranked debt standing are at the same time spending hundreds of thousands of dollars to lobby the Obama administration and Congress over the way the government regulates them.

Moody's, Fitch Ratings and Standard & Poor's, along with S & P's parent company, McGraw-Hill, have spent a combined $1.76 million since January to lobby Congress and federal agencies, much of it aimed at new regulations. The rules are part of the massive Dodd-Frank overhaul of the financial industry that Congress passed last year, and federal agencies are still midway through rewriting many regulations to conform to the new law.

Even as the rating companies lobbied, they have repeatedly warned that a failure by the White House and Congress to raise the nation's $14.3 trillion debt ceiling could force them to lower the high-level AAA ratings that U.S. Treasury bonds have long held. Even with a tentative deal to avert default within reach, rating analysts could still slash U.S. credit values if they are dissatisfied with the details, a move that could shake the financial system.

Critics worry about the potential for conflicts of interest posed by the firms' dual lobbying and rating roles. "It's pretty obvious that the current system is imperfect and has conflicts of interest built in," said David Dapice, an associate professor of economics at Tufts University. Dapice said he is skeptical that recent government reforms aimed at the industry will be effective.

The Center for Responsive Politics reports:

MOODY ABOUT THE DEBT CEILING: The rating agencyMoody’s has come out against the very existence of the debt ceiling, suggesting that the “periodic uncertainty” which accompanies the perennial debate leaves the market worse off every time, reports Politico. While the point would likely fall on deaf ears in the present political cacophony about the debt limit, Moody's is a legitimate exception, if not only because of its status in the bond rating industry, then also for the fact that Moody's has been spending vast sums on lobbying, along with their competitors Standard & Poors and Fitch Ratings.

Moody's Corp is a client of top K Street firm Akin, Gump, et al., and it spent $1.5 million last year lobbying the federal government. The year before, Moody's spent $1.25 million on lobbying, and during the first quarter of 2011, the company has already paid Akin Gump $250,000. Twelve individual lobbyists work on Moody's account, two of which are former congressmen -- Democrat Vic Fazio and Democrat-turned-Republican Lauch Faircloth. Nine other lobbyists are well-connected individuals who have passed through the revolving door, previously working as congressional staffers or government aides.

Moody's competitors are also patrons of K Street services. Standard & Poor's parent company, publishing giant McGraw Hill, spent $1.65 million on lobbying last year. Meanwhile, Fitch Ratings spent $440,000 last year, and was a client of both KSCW Inc. and Crossroads Strategies.