EthicsBite™

Bloomberg: Standard & Poor’s, facing charges that it defrauded investors, will defend itself by claiming that no one should have paid attention to its claims of independence. Why else would a ratings agency exist?

Per Bloomberg’s article, S&P will claim that “the government can’t base its fraud claims on S&P’s assertions that its ratings were independent, objective and free of conflicts of interest because U.S. courts have found that such vague and generalized statements are the kind of “puffery” that a reasonable investor wouldn’t rely on.”

This, of course, is resorting to the fine print of our legal system in an attempt to destroy the government’s case against the once well respected, and trusted, ratings agency. Far be it from us to complain about reliance on the decisions of prior cases. That reliance is the principle that supports consistency in the application of the law and is an essential component of “blind justice.”

However, if this is the best S&P has to offer in its defense, they may as well close the place down after the case is over. The whole point of ratings agencies such as S&P is precisely to provide an independent and objective opinion on the risk of an investment instrument. The very words “independence and objectivity,” which frequently appear in the codes of ethics of many professions, mean that there is no conflict of interest – that the competent opinion being rendered is untainted by any relationship the professional has with the organization on which an opinion is rendered.

If reasonable investors can’t rely upon that independence and objectivity, then there is no purpose served by a Standard & Poor’s. Close them down.