S&P and others lobby government while rating its credit

August 10, 2011

Standard & Poor’s Corp. has a major influence in Washington through its venerable bond-rating business, which helped rattle markets over the past week by downgrading U.S. debt for the first time.

But S&P also seeks to influence the U.S. government in a more traditional way: financing aggressive lobbying efforts aimed at limiting federal oversight and protecting its powerful role in financial markets.

Deputy editor, National politics View Archive

S&P’s parent company, McGraw-Hill, has spent more than $11 million on lobbying over the past 15 years, including at least $1 million on S&P-related legislation, according to an analysis of federal disclosure records by the Sunlight Foundation. The firm’s employees have also given more than $500,000 in contributions to federal candidates since 1989, primarily to Democrats, the analysis shows.

The numbers underscore the unusual political position occupied by S&P and the country’s two other top rating firms, Moody’s Investors Service and Fitch Ratings. Each company issues judgments on government creditworthiness that can move markets while lobbying the government for policies favorable to its core businesses.

Taken together, the three firms have spent more than $16 million on lobbying related to financial legislation over the past decade, including more than $13 million by Moody’s alone, according to disclosure data.

Craig Holman, government affairs lobbyist for the Public Citizen advocacy group, said S&P effectively serves a “quasi-governmental” function because of the power it has in shaping major economic policies.

“S&P wields a huge club over Congress and the president because the company can simply dictate public policies that have huge ramifications for the country and for the government,” Holman said. “Its influence over the government’s purse can easily be employed as a powerful tool to win concessions from the federal government that are in S&P’s own interest rather than the public’s interest.”

Officials with all three ratings companies say their financial analysts are cordoned off from lobbyists and other employees to ensure fair and unbiased judgments.

“Our analysts convey independent opinions about creditworthiness to the market using rigorous analytical criteria,” McGraw-Hill spokeswoman Patricia Rockenwagner said in a statement, referring to S&P. “Our lobbyists express views about public policy to the government. There is a strict firewall that separates the two — always has been, always will be.”

Michael N. Adler, vice president for corporate communications at Moody’s, said the firm “maintains a strict separation between the commercial and analytical aspects of our business, and lobbying or other commercial activities do not play any role in the ratings process.”

Fitch spokesman Daniel Noonan said lobbying efforts “are completely separate from and have zero influence upon our analytical groups that assign ratings.”

S&P announced Friday that it was lowering its rating for U.S. debt from AAA to AA+, saying that “political brinksmanship” in the debate over the U.S. debt ceiling had called into doubt the nation’s ability to manage its finances.

Treasury Secretary Timothy F. Geithner sharply criticized the firm for “terrible judgment” and said the company had made a $2 trillion error in its draft report on the issue. Moody’s and Fitch have not lowered their AAA ratings, and investors have continued to embrace U.S. bonds amid widespread market volatility.

The S&P decision also prompted a new round of criticism from Geithner and others about the firm’s track record leading up to the 2008 financial crash. A Senate panel said this year that the ratings agencies helped fuel the crisis by engaging in a profitable “race to the bottom” to prop up securities backed by subprime mortgages.

Since then, S&P and the others have fought hard on Capitol Hill to kill or limit legislation aimed at increasing scrutiny of their work.

For example, the firms are working to undo a portion of the Dodd-Frank financial reform law that removed protections barring lawsuits against the ratings firms for negligence. Federal regulators are also preparing to write rules aimed at reducing the heavy influence of the companies in the debt securities markets.

The firms employ well-connected lobbyists to carry out their efforts. S&P’s roster, for example, includes Democratic superlobbyist Tony Podesta and Douglas Nappi, who previously worked for the Senate Banking Committee and the Securities and Exchange Commission.

“These agencies occupy a fairly unique position in Washington compared to a regular financial firm,” said Bill Allison, editorial director for the Sunlight Foundation, which tracks money in politics. “They seem to have been quite successful in forestalling oversight and maintaining their independence.”

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