The Jan. 23 Opinion Page column, "Credit raters miss many danger flags," provides a disservice to your readers by presenting an inaccurate view of Standard & Poor's Corp.'s rating process.
The article inappropriately blames the rating agencies for investors being unaware of Orange County's vulnerability to the risks created by the county's investment pool - which the county ran as a separate portfolio.
In addition, the article inaccurately portrays the evaluation process, and the applicability of S&P's symbology, particularly the application of the "r" symbol to rated securities.
In the process that has served the public finance market exceedingly well for decades, ratings are based on S&P's in-depth review of information it receives augmented by analytical expertise. However, in the case of Orange County where the information supplied to the rating agencies, to county officials, and even investors in the pools is in question - as a spate of revelations in the media and a series of federal, state, and local investigations point out - the blame lies with the veracity of the information provided, not the rating agencies.
As is established practice, Standard & Poor's relies on audited financial statements supplied by issuers. It does not, nor could it reasonably be presumed to, conduct its own audits to determine the veracity of the information supplied.
Similarly, while the article stated the ratings agencies failed to take advantage of in-house expertise to examine the pool, S&P did, in fact, have analysts in its fund group review the information supplied by the county. However, once again, serious questions exist about the quality of the information provided to S&P.
Finally, the article questions why S&P failed to apply an "r" symbol to mark "one of the most sensitive funds in the country." Apart from the fact that S&P never rated the fund, the "r" symbol applies to individual securities, not funds. What's more, the securities purportedly in the Orange County Pooled Investment Fund were relatively conventional. The investment pool's problems stemmed from the interest rate and leveraging strategy used, and not the component securities.
S&P does not mind placing itself under a microscope. In the public finance arena alone, we rate more than 50,000 securities, which are subject to review every day. However, we do ask for a balanced view of our work and responsibilities.
Vladimir Y. Stadnyk
Executive managing director
Standard & Poor's Ratings Group
Public Finance Department
New York
Barry B. Burr's Feb. 6 Opinion Page column, "President's 'new' ideas good but late," suggests "social investors now have to search for new opportunities for divestment" since South Africa is no longer an issue.
To the contrary, our social research clients - all of whom are institutions or money mangers - want us to positively identify companies whose contract with America assumes that "what improves the circumstances of the greater part [of society] can never be regarded as an inconveniency to the whole" (to quote Adam Smith).
We agree with Mr. Burr that "the existing social policies that have turned large sections of many cities into urban war zones" require changing. No question about it: We are not better off today than we were at the start of 12 years of Republican administrations (and six years of a Republican Senate).
Mr. Burr suggests we may develop a "*'Newt' social policy" with divestiture of News Corp. as its starting point. Those who research corporations' social records tend to become First Amendment absolutists. So, we would never pan a publisher for taking on even as meretricious an author as Speaker Gingrich. Indeed, we chose the same News Corp. subsidiary (HarperCollins) for our last book, "Investing for Good," as he did.
Mr. Gingrich's Contract with America is a pastiche of bad ideas whose time - lamentably - has come. If Republican and Democratic leaders studied the types of companies our clients find attractive, they would abandon their neutron bomb approach to the nation's ills and adopt positive social policies.
Peter D. Kinder
President
Kinder, Lydenberg, Domini & Co. Inc.
Cambridge, Mass.
