To answer a reader's question, yes, I did get a kick out of the argument by S&P's lawyers (paid subscription required) that statements by S&P "about independence and objectivity are 'puffery' and were never meant to be taken at face value by investors."
Standard & Poor's responded formally on Monday to the civil lawsuit that the Justice Department filed against the company on Feb. 4 in U.S. District Court in Los Angeles.
The federal government says that the rating firm committed fraud when it allegedly misrepresented its ratings as independent and objective.
In its formal defense filed Monday, S&P pointed to two earlier court decisions where judges ruled that such statements by the firm were puffery and therefore can't form the basis for a fraud claim.
"Even if it's a viable legal argument, it's a pretty unattractive argument for S&P to be putting forward since they're basically in the business of charging clients for their reputation," said Samuel Buell, a law professor at Duke University and a former federal prosecutor. "What they're saying here is, 'When we're talking to investors about our own reputation, we're engaging in meaningless puffery.' "
"That's the whole point of the rating agencies, their seal of approval," Mr. Buell said.
It's hard to argue with Professor Buell about that.
Predictably, this all drove Larry Doyle over the edge.
In conclusion, the statement made by S&P’s lawyer is the equivalent of throwing another log on the fire that is incinerating any sense of meaningful integrity within the Wall Street-Washington conspiracy.
Puff . . . puff . . . up in smoke!
You may want to do the same with any credit ratings that cross your desk from S&P and its industry brethren at Moody’s and Fitch.
As hard as this is to believe, I'm going to say that the provision of Dodd-Frank that requires the regulators to figure out an alternative to the rating agencies is justified, not merely by the facts, but by the damning words flowing from the rating agencies and their mouthpieces. The problem is, thus far, no one has figured out what that alternative might be.
One option on the table is a proposal by Sen. Al Franken (D., Minn.) to create a board that would assign rating firms to rate deals. "As this lawsuit unfolds, it only becomes more clear that the credit rating industry is in need of serious reform, and that the American people and our economy are still at risk as a result of the conflict of interest in the industry," Mr. Franken said in a statement.
Wait a minute: I just agreed with Al Franken. Don't tell anyone. This moment may pass.
Uh, oh. I think Hell just froze over.