Credit Rating Agencies, Considering U.S. Downgrade, Testify About Role in Mortgage Market Collapse

ABC News' Dan Arnall ( @abcmoneyguy ) reports:

There was an interesting bit of theater on Capitol Hill Wednesday – the ratings agencies testified at a hearing on their role in the subprime mortgage market collapse.

Needless to say the members of the House Financial Services Committee asked a lot of questions about the possibility of a U.S. downgrade - an event in which ratings agency would also play an important role.

Standard & Poor’s president Deven Sharma told the committee members that his analysts don’t expect a default by the U.S. Treasury. He won’t make any suggestions on the debt plans currently going through the legislative process – not wanting to get involved in the political process currently playing out.

“In a global economy where we rate more than 120 sovereign governments, it is particularly important that rating methodologies not become subject to influence by one or more countries seeking to benefit its own rating, which would undermine the independence, comparability and value of ratings to all,” said Sharma in testimony prepared for a House Financial Services subcommittee hearing today.

During the question period, he went on to say, while they don’t have comments on particular plans, “…the more important issue is the long term growth rate of the debt.”

This is aligned with S&P’s public statements that their ratings committee is looking for “a credible solution to the rising U.S. government debt burden.”

What we’re hearing loud and clear: Without some credible action on the long-term debt issues there might be a downgrade by S&P even if we don’t default on a single interest or principal payment.

S&P recently released a troubling prognosis of what could happen to the economy in the event of a default.

While the S&P president may be saying he does not want to play a role in the political process, the very clear messages his agency has sent about the possibility of a downgrade has been an important factor in the political debate.

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