Reader Gary M. Barnbaum, an accountant and management consultant in Woodland Hills, took issue with The Times' editorial Wednesday about the federal and state lawsuits against Standard & Poor's. Although the editorial board welcomed the scrutiny of the credit rating agency's bullish stance on mortgage-backed securities, it noted that "if the bubble hadn't burst, S&P's ratings wouldn't have proved so horribly wrong." It's one thing to deliberately mislead people, but "simply offering a bad opinion based on poorly drawn assumptions shouldn't be grounds for liability."
In a letter published Friday, Barnbaum wrote, "According to Michael Lewis' book 'The Big Short,' everyone close to the situation knew that the mortgages that were bundled into those horrible securities were not just 'flawed,' they were garbage.... [F]reedom to express an opinion? Should PricewaterhouseCoopers not be held responsible for a bungled audit in which they render an unqualified opinion on the financial statements of a company? Yes, S&P is responsible and should be liable."
Editorial writer Jon Healey responds:
There's a crucial difference between S&P and PricewaterhouseCoopers. If the latter renders an expert opinion about a company's books as part of a prospectus, it's liable for any "material statement or omission" that harms investors. The ratings by agencies such as S&P were exempted from liability until Congress passed the Dodd-Frank law in 2010, and the Securities and Exchange Commission has since extended the exemption indefinitely.