There was an interesting split of opinion yesterday on the news that Andrew Cuomo is subpoenaing banks over their dealings with the ratings agencies, and whether they plied the raters with misleading to get those coveted AAA scores.
As we wrote yesterday, this could be a big deal. Felix Salmon on the other hand — who is typically much less sympathetic to banks than we are — thinks it’s more of a PR move for Andrew Cuomo.
I, on the other hand, suspect that this is more of a fishing expedition, thanks in part to a line in the NYT story about how the banks in question were “contacted after subpoenas were issued by Mr. Cuomo’s office late Wednesday night notifying the banks of his investigation”. (Weirdly, that line has now disappeared from the story.) I concluded from that that the investigation was just beginning, and that the NYT had been told about it even before the banks were.
We actually don’t disagree that much. It is probably but a fishing expedition, but we think he’s fishing in fertile waters.
Most of the complaints we’ve got heretofore suffer from two things: A scandalous amount of hindsight bias (e.g.: “Goldman made securities it knew would implode”), and lack an obvious piece of crucial information that was wit held (on the ABACUS charges, for example, there’s a lot of debate about whether Paulson’s involvement was actually material info).
But dealing with the raters is different. Here it’s not about doing a sales job, but about whether proper information was provided. This is a good place for Cuomo to be fishing?
So yes, fishing expedition? Big time. Political stunt? Sure. Beyond that, there are questions, as Aaron Task pointed out yesterday, of how it would even be possible to mislead the raters given their involvement in packaging these securities, so it could be a lot of hot air. But we still think this is one to watch.