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Comments about ‘Don't blame S&P; we all had a hand in the economic collapse’

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Published: Tuesday, Feb. 12 2013 12:00 a.m. MST

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Chris B
Salt Lake City, UT

Liberals would rather that Mitt Romney and other rich people were poor like the rest of us.

Then we'd be equal, which is the pinnacle of success in their minds.

Even if that equality means overall we're worse off.

slpa1
West Jordan, UT

At least three credible authors disagree with and refute the arguments made by Samuelson in this article.

Gretchen Morgenson, author of "Reckless Endangerment", Andrew Ross Sorkin, author of "Too Big to Fail", and Michael Lewis, author of "The Big Short." Each zeroes in on the rating agencies - not just S&P, but Moody's and Fitch as well - as having given fraudulent ratings to mortgage-backed securities and CDOs, making billions in fees doing so.

Those fraudulent AAA ratings led public employee pension systems, which, by law in most states, are forbidden to invest in any securities other than AAA - to invest heavily in mortgage backed securities. When the market collapsed, the public employee pension systems were left holding the bag, losing billions. This included Utah Retirement Systems.

But who got the blame? Wall Street? The Bond Raters? No, public employee unions got the blame, accused of extravagant pension plans. Read the books referenced above and see what you think. They are non-partisan, heavily documented, and deeply probing. It will be worth your time.

dan76
san antonio, TX

"Don't blame S&P; we all had a hand in the economic collapse"

Disagree! I kept personal spending within a budget and did not assume debt other than a mortgage which was paid off early. I also trusted state/federal regulators to do their jobs. Furthermore I expected politicians to act in the best interest of the country.

Twin Lights
Louisville, KY

From the article:

"S&P rigged bond ratings for its own gain — providing artificially high ratings on the mortgage-backed securities that inflated the credit bubble".

No. S&P claimed to be risk experts who could guide the less informed about how risky the bonds they were buying were. S&P in fact had little to no understanding of those complex instruments and therefore were blowing smoke at their clients and the markets in general.

Note - this was not an instance of them simply turning out to be wrong on a forecast (that is just business). This is them saying they understood these instruments enough to rate them as excellent, when in fact they didn't understand them hardly at all.

If you don't know, then your fiduciary responsibility is to say "I don't know". Clients and the economy were hurt by their hubris (and greed). Clients and the economy took a strong whack. S&P and the other bond rating agencies deserve a strong whack in turn.

No sympathy.

Nate
Pleasant Grove, UT

I know Samuelson probably has limited space, but he leaves unexplored the theme of government intrusions into the housing market. Federal housing policy helped to drive the collapse.

The implicit guarantee of taxpayer backing to loans approved by Fannie and Freddie led investors to take risks that they otherwise would not have taken. (This illustrates one of the major weaknesses of socialism -- when all bear the risk together, individuals make different decisions than they would make if the risks were theirs alone.)

In addition, lending standards were eroded by "affordable housing" laws demanding that quotas be met on the percentage of loans going to low-income borrowers. The quota began in 1992 at 30%, meaning that 30% of the loans bought by Fannie and Freddie were required to be made to people below the median income in their communities. Under Clinton the quota was raised to 50%, and under Bush it was raised again to 55%. (This was a bipartisan fiasco.) In this scenario, it was inevitable that lending standards would decline.

Going from there, Samuelson's description of mass psychology effects is accurate, but he left out this portion of the background.

pragmatistferlife
salt lake city, utah

Nate, Mr. Samuelson doesn't discuss Freddie and Fannie for two reasons. First of all they are completely irrelevant to the point of the article, and second they weren't the prime cause of bad loans.

Freddie and Fannie certainly played an eventual role but they were late to the party and the game was well under way with the outcome certain.. led by the Wall Street greed described by Mr. Samuelson. At the start of 2007 Freddie and Fannie only had 6% of it's mortgages more than 90 days past due while the wall street backed mortgages were around 20+% 90 days overdue. By the end, late freddie and fannie mortgages had increased to about 15% but the wall street mortgages were well above 40%.

Freddie and Fannie were simply not the cause. They jumped in to survive but they certainly didn't lead.

Nate
Pleasant Grove, UT

@pragmatistferlife

I don't dispute your numbers, but they don't say anything about original cause. What caused the mess, was that mortgage underwriting standards were lowered. Groups like ACORN pressed Congress to make housing accessible to more people, and they in turn used their authority to impose new requirements on the GSEs. Before 1992, Fannie and Freddie had been required to buy only prime mortgages. After 1992, affordable housing laws required them to meet quotas set by the housing administration. Say goodbye to underwriting standards.

Yes, once the gate was down, Wall Street drove a bus through it. But the original cause was federal housing policy.

pragmatistferlife
salt lake city, utah

Nate, cause is an interesting term. I'm sure both of our facts are straight and in my world view sub prime lending is a natural extention of a finace driven economy. Maybe not a good one but an inevitable one. Sub prime lending croped up all over the place in the late 80's and 90's. It was very prevelent in the auto industry even in the the largest and most stable of banks. It croped up without any government encouragement, just an opportunity for profit. This is the reason I personally don't think the principle of subprime lending in and of itself "caused" the melt down. It held it's own and was contained within reasonable limits until wall street figured out how to abuse it.

UtahBlueDevil
Durham, NC

Chris - what do your comments have to do with anything about this opinion piece? Liberal - equality - huh?

As was already pointed out, there were many factors that drove the housing bubble. Amazingly S&P seems to feel qualified to place a rating on governmental credit worthiness - somehow being able to have clarity on the complexities of the US economy, yet should be absolved from colluding with banks to sell off sub prime loan packages as highly rated securities.

I fail to see how in the world this is a partisan issue. If those agencies that the public trust to accurately report on the quality of equities violates that trust - why should they be exempt from responsibility for their actions. Why the pass for their contribution to the problem... large or small.

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