AG Janet Mills Announces Record $21M Settlement from 19 State S&P Lawsuit

Posted on February 4, 2015. Filed under: Uncategorized | Tags: , , , , |

Earlier today Maine Attorney General stood on the steps of the Kennebec County Courthouse to meet with press and announce that a huge chunk of money is coming our way. Via press release:

    Attorney General Janet Mills has announced the largest ever one-time settlement in Maine history. The State of Maine filed papers Wednesday with the Superior Court settling the state’s complex lawsuit against Standard & Poor’s (S&P). The lawsuit, originally filed two years ago in Kennebec Superior Court, alleged that the credit ratings giant engaged in unfair and deceptive trade practices in connection with its ratings during the time leading up to the financial crisis of 2008. The settlement was negotiated in conjunction with the federal Department of Justice and 19 states and the District of Columbia. Maine will receive $21.5 million dollars for consumer protection efforts.

    The total settlement amount is $1.375 Billion. One half of the amount was paid the United States Department of Justice to settle its case. The other half was divided among the states that sued S&P. S&P is paying the Maine Office of the Attorney General $21,535,714.00, an amount commensurate with the economic harm caused by the company’s behavior and an amount which exceeds the profits from its activities, amounting to essentially a disgorgement of S&P’s ill-gotten gains. The state’s share will be directed toward consumer protection and education efforts.

Portions of her prepared statement:

DSC_0012

    “Holding S&P accountable for these practices tells Wall Street we will not tolerate acts that deceive investors and devastate our economy,” said Attorney General Mills. “As Attorney General I will continue to work to promote transparency and protect the integrity of our financial system. This settlement shows that banks did not act alone and that the Attorneys General of the states and of the United States together will pursue any entity that violates the public trust and stacks the deck against consumers and homeowners.”

Per Assistant Attorney General Linda Conti, Maine’s Consumer Protection Division Chief, the states are dividing the windfall pretty much equally, with a few exceptions receiving a slightly larger portion. More from the Justice Department:

    In its agreed statement of facts, S&P admits that its decisions on its rating models were affected by business concerns, and that, with an eye to business concerns, S&P maintained and continued to issue positive ratings on securities despite a growing awareness of quality problems with those securities. S&P acknowledges that:

    AG Janet T. Mills answers media questions at the Kennebec County Courthouse press conference. Also pictured, Asst AG Linda Conti.

    AG Janet T. Mills answers media questions at the Kennebec County Courthouse press conference. Also pictured, Asst AG Linda Conti.

    • S&P promised investors at all relevant times that its ratings must be independent and objective and must not be affected by any existing or potential business relationship;
    • S&P executives have admitted, despite its representations, that decisions about the testing and rollout of updates to S&P’s model for rating CDOs were made, at least in part, based on the effect that any update would have on S&P’s business relationship with issuers;
    • Relevant people within S&P knew in 2007 many loans in RMBS transactions S&P were rating were delinquent and that losses were probable;
    • S&P representatives continued to issue and confirm positive ratings without adjustments to reflect the negative rating actions that it expected would come.

There is ongoing similar multi-state litigation against Moody’s as well, but that is still in its preliminary stage. As such, Mills and her office were unwilling to discuss details pertaining to that case.

As for distribution of the $21M, Mills said that she intended to speak with legislative leadership and the governor’s office with recommendations for usage of the funds.

Read Full Post | Make a Comment ( None so far )

LePage Issues Statement on U.S. Credit Rating Downgrade, Despite S&P’s Own Credibility Issues

Posted on August 6, 2012. Filed under: Uncategorized | Tags: , , , |

Governor LePage’s office released the following press release minutes ago:

 


Governor LePage’s Statement on the U.S. Credit Rating Downgrade

For Immediate Release: Saturday, August 06, 2011Contact: Adrienne Bennett

The following statement from Governor Paul LePage was released Saturday morning from the Office of the Governor.

“It’s clear now, Congress and the White House antics over raising the nation’s $14.3 trillion borrowing limit has cost Americans. The U.S credit rating downgrade from AAA to AA+ will deeply affect our Nation in a way that we have not experienced since 1917.

The political posturing and last minute decision by Congress proves to be part of S&P’s downgrade. Using debt default as a bargaining chip rather than putting our fiscal house back in order was an enormously risky maneuver that failed. It is a major setback for our future and economic credibility of our Country and it’s time our leaders in Washington start working to get our economy back on track instead of worrying about upcoming elections.”

In addition, spokeswoman Adrienne Bennett offered:

“Maine has chosen to do the right thing in not taking on new debt and reducing our unfunded liability long-term. Maine has done exactly what S&P’s John Chambers said is what Washington should have done. We can take away a very valuable lesson from this downgrade decision, in that, it is important to not separate the budget process from debt authorization. In order to achieve fiscal stability we must examine both and acknowledge the impact they have on our State.”

This is very odd, considering that last night there was wide speculation what had occurred.

First, there were reports that the S&P’s decision to downgrade was based upon a $2 trillion dollar calculating error:

 

Standard & Poor’s decision to downgrade the U.S. credit rating was flawed by a $2 trillion error, according to a Treasury Department spokesman.S&P lowered the nation’s AAA grade one level to AA+ yesterday, after warning on July 14 that it would reduce the ranking in the absence of a “credible” plan to lower deficits even if the nation’s $14.3 trillion debt limit were lifted. The outlook was kept as “negative.”

The Treasury disagreed with S&P’s assessment because the analysis was carried out hastily, said a person familiar with the matter who declined to be identified because the discussions were private. The ratings firm erred in estimating discretionary spending levels at $2 trillion higher than Congressional Budget Office estimates, the person said.

The S&P decision went further than Moody’s Investors Service and Fitch Ratings, which affirmed their AAA credit ratings for the U.S. on Aug. 2, the day President Barack Obama signed a bill that ended the debt-ceiling impasse that pushed the country to the edge of default. Moody’s and Fitch both said that downgrades were possible if lawmakers fail to enact debt reduction measures and the economy weakens.

CNBC has this report which clearly states that Standard and Poor’s was aware of their $2 trillion dollar error BEFORE they made the final decision to downgrade, which only fuels speculation as to a motive for the unprecedented move:

 

Told they had a $2 trillion error in their calculation of US deficits over a 10-year period, Standard and Poor’s scrambled in the afternoon Friday to reconsider its historic decision to downgrade the United States government. Sources familiar with the situation say S&P had to rouse several of its European committee members from bed to hold an emergency conference call as markets headed toward their close in the US.The outcome: the agency affirmed the decision the committee had made just that morning, yanking its triple-A rating from the United States and downgrading it one notch to AA+.

The error and the time the ratings agency took to reconsider its downgrade are among the controversies surrounding the ultimate decision to downgrade the United States, which has held the agency’s top triple-A rating since 1941.

What is not at issue is that sometime in the early afternoon Friday, S&P informed the US Treasury that its committee had decided to downgrade US sovereign debt. Ratings agencies typically inform issuers of their decision before a press release is issued. But US officials quickly noticed an error in the agency’s calculations. This resulted in a change in the projected debt to GDP ratio. Instead of the 87 percent in 2021 miscalculated by S&P, it should have been 79 percent, a roughly $2 trillion mistake.

Neither side disputes the error.

Another thought is that the historic downgraded rating was a diversionary tactic away from their own culpability in the mortgage crisis. There is an excellent timeline within the linked piece with the following conclusion:

 

It’s becoming more and more obvious that Standard and Poor’s has a political agenda riding on the notion that the US is at risk of default on its debt based on some arbitrary limit to the debt-to-GDP ratio. There is no sound basis for that limit, or for S&P’s insistence on at least a $4 trillion down payment on debt reduction, any more than there is for the crackpot notion that a non-crazy US can be forced to default on its debt.Whatever S&P’s agenda, it has nothing to do with avoiding default risks or putting the US on sound fiscal footing. It appears to be intertwined with their attempts to absolve themselves from responsibility for their role in the 2008 financial crisis, and they are willing to manipulate not only the 2012 election but the world economy to escape the SEC’s attempts to regulate them.

It will be very interesting to see how/if Maine media decides to question the Governor and Bennett, as well as how either will respond.

Read Full Post | Make a Comment ( None so far )

Standard and Poor’s Downgrades U.S.’s AAA Credit Rating; First Time in History

Posted on August 5, 2011. Filed under: Uncategorized | Tags: , , , |

The S&P put out a press release this evening via the Wall Street Journal regarding their decision. Some highlights:

We have lowered our long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’ and affirmed the ‘A-1+’ short-term rating.
– We have also removed both the short- and long-term ratings from CreditWatch negative.

– The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.

– More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.

– Since then, we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy, which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics any time soon.

– The outlook on the long-term rating is negative. We could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.

TORONTO (Standard & Poor’s) Aug. 5, 2011-

Standard & Poor’s Ratings Services said today that it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative. At the same time, Standard & Poor’s affirmed its ‘A-1+’ short-term rating on the U.S. In addition, Standard & Poor’s removed both ratings from CreditWatch, where they were placed on July 14, 2011, with negative implications.

The transfer and convertibility (T&C) assessment of the U.S.-our assessment of the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service-remains ‘AAA’.

We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria (see “Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.

We have taken the ratings off CreditWatch because the Aug. 2 passage of the Budget Control Act Amendment of 2011 has removed any perceived immediate threat of payment default posed by delays to raising the government’s debt ceiling. In addition, we believe that the act provides sufficient clarity to allow us to evaluate the likely course of U.S. fiscal policy for the next few years.

The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy. Despite this year’s wide-ranging debate, in our view, the differences between political parties have proven to be extraordinarily difficult to bridge, and, as we see it, the resulting agreement fell well short of the comprehensive fiscal consolidation program that some proponents had envisaged until quite recently. Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.

Our opinion is that elected officials remain wary of tackling the structural issues required to effectively address the rising U.S. public debt burden in a manner consistent with a ‘AAA’ rating and with ‘AAA’ rated sovereign peers (see Sovereign Government Rating Methodology and Assumptions,” June 30, 2011, especially Paragraphs 36-41). In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid). A new political consensus might (or might not) emerge after the 2012 elections, but we believe that by then, the government debt burden will likely be higher, the needed medium-term fiscal adjustment potentially greater, and the inflection point on the U.S. population’s demographics and other age-related spending drivers closer at hand (see “Global Aging 2011: In The U.S., Going Gray Will Likely Cost Even More Green, Now,” June 21, 2011).

Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might conclude is appropriate for putting the U.S.’s finances on a sustainable footing.

The act calls for as much as $2.4 trillion of reductions in expenditure growth over the 10 years through 2021. These cuts will be implemented in two steps: the $917 billion agreed to initially, followed by an additional $1.5 trillion that the newly formed Congressional Joint Select Committee on Deficit Reduction is supposed to recommend by November 2011. The act contains no measures to raise taxes or otherwise enhance revenues, though the committee could recommend them.

The act further provides that if Congress does not enact the committee’s recommendations, cuts of $1.2 trillion will be implemented over the same time period. The reductions would mainly affect outlays for civilian discretionary spending, defense, and Medicare. We understand that this fall-back mechanism is designed to encourage Congress to embrace a more balanced mix of expenditure savings, as the committee might recommend.

We note that in a letter to Congress on Aug. 1, 2011, the Congressional Budget Office (CBO) estimated total budgetary savings under the act to be at least $2.1 trillion over the next 10 years relative to its baseline assumptions. In updating our own fiscal projections, with certain modifications outlined below, we have relied on the CBO’s latest “Alternate Fiscal Scenario” of June 2011, updated to include the CBO assumptions contained in its Aug. 1 letter to Congress. In general, the CBO’s “Alternate Fiscal Scenario” assumes a continuation of recent Congressional action overriding existing law.

We view the act’s measures as a step toward fiscal consolidation. However, this is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future. Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario-which we consider to be consistent with a ‘AA+’ long-term rating and a negative outlook-we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act’s revised policy settings.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act. Key macroeconomic assumptions in the base case scenario include trend real GDP growth of 3% and consumer price inflation near 2% annually over the decade.

Our revised upside scenario-which, other things being equal, we view as consistent with the outlook on the ‘AA+’ long-term rating being revised to stable-retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating. In this scenario, we project that the net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 77% in 2015 and to 78% by 2021.

Our revised downside scenario-which, other things being equal, we view as being consistent with a possible further downgrade to a ‘AA’ long-term rating-features less-favorable macroeconomic assumptions, as outlined below and also assumes that the second round of spending cuts (at least $1.2 trillion) that the act calls for does not occur. This scenario also assumes somewhat higher nominal interest rates for U.S. Treasuries. We still believe that the role of the U.S. dollar as the key reserve currency confers a government funding advantage, one that could change only slowly over time, and that Fed policy might lean toward continued loose monetary policy at a time of fiscal tightening. Nonetheless, it is possible that interest rates could rise if investors re-price relative risks. As a result, our alternate scenario factors in a 50 basis point (bp)-75 bp rise in 10-year bond yields relative to the base and upside cases from 2013 onwards. In this scenario, we project the net public debt burden would rise from 74% of GDP in 2011 to 90% in 2015 and to 101% by 2021.

Our revised scenarios also take into account the significant negative revisions to historical GDP data that the Bureau of Economic Analysis announced on July 29. From our perspective, the effect of these revisions underscores two related points when evaluating the likely debt trajectory of the U.S. government. First, the revisions show that the recent recession was deeper than previously assumed, so the GDP this year is lower than previously thought in both nominal and real terms. Consequently, the debt burden is slightly higher. Second, the revised data highlight the sub-par path of the current economic recovery when compared with rebounds following previous post-war recessions. We believe the sluggish pace of the current economic recovery could be consistent with the experiences of countries that have had financial crises in which the slow process of debt deleveraging in the private sector leads to a persistent drag on demand. As a result, our downside case scenario assumes relatively modest real trend GDP growth of 2.5% and inflation of near 1.5% annually going forward.

When comparing the U.S. to sovereigns with ‘AAA’ long-term ratings that we view as relevant peers-Canada, France, Germany, and the U.K.-we also observe, based on our base case scenarios for each, that the trajectory of the U.S.’s net public debt is diverging from the others. Including the U.S., we estimate that these five sovereigns will have net general government debt to GDP ratios this year ranging from 34% (Canada) to 80% (the U.K.), with the U.S. debt burden at 74%. By 2015, we project that their net public debt to GDP ratios will range between 30% (lowest, Canada) and 83% (highest, France), with the U.S. debt burden at 79%. However, in contrast with the U.S., we project that the net public debt burdens of these other sovereigns will begin to decline, either before or by 2015.

Standard & Poor’s transfer T&C assessment of the U.S. remains ‘AAA’. Our T&C assessment reflects our view of the likelihood of the sovereign restricting other public and private issuers’ access to foreign exchange needed to meet debt service. Although in our view the credit standing of the U.S. government has deteriorated modestly, we see little indication that official interference of this kind is entering onto the policy agenda of either Congress or the Administration. Consequently, we continue to view this risk as being highly remote.

The outlook on the long-term rating is negative. As our downside alternate fiscal scenario illustrates, a higher public debt trajectory than we currently assume could lead us to lower the long-term rating again. On the other hand, as our upside scenario highlights, if the recommendations of the Congressional Joint Select Committee on Deficit Reduction-independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners-lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government’s debt dynamics, the long-term rating could stabilize at ‘AA+’.

On Monday, we will issue separate releases concerning affected ratings in the funds, government-related entities, financial institutions, insurance, public finance, and structured finance sectors.

Read Full Post | Make a Comment ( None so far )

Liked it here?
Why not try sites on the blogroll...

%d bloggers like this: