Interesting Timing: News Leaks That Justice Dept Is Investigating S&P Just After It Downgrades US?

from the uh-huh dept

So just a couple weeks after S&P's (overhyped) downgrade of US debt, a story leaks that the Justice Department is investigating the S&P's ratings system. The reports say that the Justice Department investigation began before the downgrade -- which I absolutely believe to be true. It also notes that the focus is on conflicts of interest and a quote from an S&P managing director about not killing "the golden goose."

But, here's the thing. The timing of the news of the information getting out is certainly questionable. Even if the investigation is about mortgage debt, not sovereign debt, and even if it started before all this, just having it come out so soon seems like a clear shot at ratings agencies: downgrade the government and we'll ramp up our investigations of you. Does an action like this give Moody's or Fitch pause before changing their ratings on US debt? The report notes that it's "unknown" if only S&P is being investigated, or if all three are, which certainly seems like fair warning: downgrade us and we'll leak some dirty laundry.

As for the legitimacy of the investigation, again it seems to all go back to the fact that these firms ratings are seen -- in part due to US regulations -- as gospel fact, rather than just another opinion on value. That's a problem. Perhaps there's a case to be made that S&P's ratings people believed one thing while publicly stating another, and that can be turned into a fraud claim, but it seems like it may be a difficult case. A rating is still an opinion and an opinion is protected free speech. Getting over that hurdle is possible, but difficult. It seems like a much more effective way to stop S&P from abusing the system is to stop forcing organizations to treat its ratings as gospel. I would bet that would do a lot more damage than any lawsuit or criminal action against the company or its execs.

Filed Under: downgrades, investigation, ratings
Companies: s&p

No, Having To Pay To Downgrade From Vista To XP Is Not An Antitrust Violation

from the that's-not-how-it-works dept

Last year we noted that while it was amusing to see a lawsuit from someone angry that they had to pay to downgrade from Vista to XP on their computer, it was hard to see how it was an antitrust violation, as the lawsuit was alleging. As we joked, perhaps that could be Microsoft's new business model: keep coming out with worse and worse operating systems, but charge people more and more to stick with the older systems. Either way, as we expected, that lawsuit didn't last long and was recently thrown out. As the court found, there was no evidence that Microsoft actually benefited from users downgrading. It seems pretty clear that Microsoft has always wanted people to sign up for its latest operating systems, and it would greatly prefer that over anyone (paying or not) downgrading to older versions. It also turned out that the "fee" the woman who brought the lawsuit paid was not to Microsoft, but to the computer manufacturer (in that case, Lenovo). In fact, the court pointed out that, technically, Microsoft gave a "free" extra operating system with the deal, since the buyer received both Vista and XP, at no additional revenue to Microsoft.

Filed Under: antitrust, downgrades, vista, xp
Companies: lenovo, microsoft

You Mean Wall Street Just Realized The Recording Industry Was In Trouble?

from the why-you-don't-trust-wall-street-analysts dept

You didn't have to be particularly insightful to realize a while back that the traditional recording industry was in trouble if it kept traveling down the self-destructive path of suing music fans and shutting down unique and innovative distribution tools. However, it appears that the folks on Wall Street are just starting to figure it out. Apparently, the recent defections of Madonna, Radiohead and other big name acts has Wall Street analysts finally suggesting that the recording industry's future isn't very bright, and thus downgrading the labels' prospects. The thing is, they should have realized that long ago. The big name act defections are simply the end result of a long chain of strategic blunders, despite any number of people presenting more reasonable plans forward. Again, this is focused solely on the record labels, not the overall music industry -- which is thriving. In fact, the record labels have had every opportunity to embrace these new tools and be a big part of online promotions -- but they chose not to. One would hope that with even Wall St. analysts telling them their strategy is wrong the record labels might wake up to the opportunity they've thrown away, but the labels themselves (with the possible exception of EMI -- which was recently taken over by private equity folks who seem to realize what's going on) have given no indication of any significant change in strategy.

Filed Under: downgrades, recording industry, wall street