Monday, February 11, 2013

Will S&P suffer the fate of Arthur Andersen?

The  bigger they are, the harder they fall.  From the NY Times: They were the gatekeepers, with a clear conflict of interest — the people they were supposed to check up on were also the ones who hired and paid them. The need to protect their reputation was supposed to assure that the conflict would not lead to bad behavior.

.But it did not. Those within the firm who wanted to be tough found themselves outmaneuvered by those who wanted to make compromises to keep business that might otherwise be lost to competitors — competitors who were not above making compromises themselves. It was not that they wanted to act badly, only that they did not want to offend important customers. They had no idea that the corners they were cutting would blow up into a scandal that would dominate the news, shock the nation and lead to the demise of the firm.

That is a description of what happened to Arthur Andersen, the accounting firm, more than a decade ago. It may turn out to be a description of what will happen to Standard & Poor’s, the ratings agency, as a result of its behavior during the housing boom....

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