Westwood Capital's Alpert on the S&P downgrade and its citing of political risk

Daniel Alpert discussed with us on Benzinga Radio S&P's recent downgrade of U.S. debt. The two main issues he has with the downgrade is a) the fact that S&P can so easily insert themselves into the American political process and b) the de facto recognition of their judgments by the U.S. government by way of the NRSRO status they hold. Dan explained how S&P, unlike Moody's and Fitch, incorporates "political risk" into their ratings on sovereign debt. Indeed, one of the chief reasons cited for stripping the USA of its long-held AAA status was the state of the political process in the United States. S&P: “More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating." Dan disagrees, saying, "Not only do I think they interpreted that incorrectly, but quite frankly, I am very uncomfortable with the notion of ratings agencies actually inserting themselves into the political process." Check out the audio to hear Dan's thoughts on the NRSRO regime, litigation against the raters, the raters' business models, and the political process. Also, read his article on the downgrade here: Downgrading USA: S&P Bites the Hand That Feeds It