Mortgage lenders aren’t selling subprime loans much anymore, but apparently the credit rating agencies that certified them as safe and profitable investments are back at it, this time killing a book critical of, well, a ratings agency.
The tale comes from Barry Ritholtz at The Big Picture, who had a contract with publisher McGraw Hill, which owns the Standard & Poor’s credit rating agency, for a book on the financial crisis to be called “Bailout Nation.” Ritholtz said he was well aware his publisher owned a ratings agency, but his contract also called for him to have final editing control. Still, things didn’t work out, once McGraw Hill got a look at his chapters detailing the failings of ratings agencies. They’ve been blamed for contributing to the financial crisis by giving high ratings to risky mortgage-backed securities, as they were collecting fees from the investment banks that issuing them.
When it came to chapter 14 — Who is to Blame? – there were issues about the style of what I wrote about Moody’s, S&P and Fitch’s. I literally called the ratings agencies and investment bankers “Pimps and Whores;” I accused them of engaging in pay for play (buying ratings) payola, etc. Rather than describe it, I will simply post the original version here.
Ritholtz got some pushback from an editor, but still figured he could tell his story:
Now, before you assume I am an idiot for doing a book that was critical of the ratings agencies with a publisher that owns S&P, understand that I properly anticipated this. My contract gave me Final Edit. Not only that, I had previously discussed this issue months earlier with then publisher Herb Schaffner. (He was laid off in a big Q4 round of firings).
Sometime over the summer, Herb informed me that the ratings agencies discussions would have to be handled “delicately and diplomatically.”
I responded, “Sorry, Herb, but I don’t do diplomacy.” If they wanted someone who was subtle or diplomatic, boy did they have the wrong guy. I offered to return the advance check and we could all move on. He backed down, and I assumed — apparently quite wrongly — that this was the end of this issue. How can you write a book on this subject and not lambast the ratings agencies?
Well, apparently you can’t, at least not in this case. Editors wanted more changes in the ratings agency section, but Ritholtz said no way. He told them to cancel his contract, if they wanted to go that route. McGraw Hill did.
The publisher said in a statement the book was canceled because of conflicts over editing and sourcing, not because of criticism of the ratings agencies; Ritholtz denies that.
In the end, as the financial system continues to teeter on collapse, “Bailout Nation” and its story of the behavior of credit agencies during the subprime boom still awaits the light of day.