McGraw Hill Drops Book Critical of S&P

McGraw Hill has dropped Barry Ritholtz's Bailout Nation book and the author charges that the publisher quashed it to protect its Standard & Poor's credit-rating division.

Ritholtz, whose Big Picture economics and financial blog has become must-reading, had what should have been a publisher's dream. The blogger came up with a book idea in the spring of last year on the financial collapse. McGraw Hill bought the rights for a modest advance and he set about writing it.

Events cooperated. As he was writing, Lehman Brothers and AIG collapsed, Goldman and Morgan Stanley became bank holding companies, and the Bush administration rolled out its massive $700 billion TARP plan to aid the banking sector.

In short, Ritholtz was writing Bailout Nation before we became a nation of bailouts.

It looked like it might be a hit. Ritholtz was told that a month away from publication, 22,000 copies had been pre-sold, a high number.

But now McGraw Hill has dropped the book, apparently concerned about the shots Ritholtz took at S&P. McGraw Hill didn't return calls inviting it comment on Ritholtz's allegation.

Update: McGraw Hill spokesman Steven Weiss this afternoon said the publisher dropped the book because of a conflict with Ritholtz over editing, not because of his criticism of S&P. "The material needed extensive corroboration across a range of topics. We could not agree on unified approach with the author for resolving the issues," Weiss said. He denied that the publisher dropped the book because of what Ritholtz had written about S&P. "It is simply not true," Weiss said. "We have a range of editorial entities that often report critically about the company and we support and encourage their independent voices."

Along with Moody's and Fitch, S&P has been widely criticized--wholly justifiably, in my view--for having rated massive amounts of junk asset-backed securities incorrectly. The essential problem, in short, is that the ratings agencies are paid by the issuers of the WMD paper, the Wall Street firms; it's an untenable conflict of interest.

Ritholtz says that McGraw Hill editors assured him that he would be free to write what he wanted. "I'm so pissed at these doofuses," he says. "Maybe I should have expected it but I really thought they wouldn't be jerks."

The irony, he adds, is that "they came to me and asked me to do a book. Initially, I said, 'No thanks.' But they insisted, saying they really liked my voice."

When the manuscript came in, however, his editors suddenly had some concerns, though apparently they only were with some of his language. "They made a request to do a stylistic change, not for content," Ritholtz says. "I agreed to it, but only if not content."

In his original version, Ritholtz wrote that, "Far from being objective arbiters of the credit worthiness of debt instruments, the three major agencies--Standard & Poor's, Moody's, and Fitch Ratings--conducted a form of 'payola.' "

He continued: "These three rating agencies were the key enablers in the housing crisis and the subprime debacle. They were the pimps to the fixed-income fund managers' johns. The investment banks whored out junk paper, and the ratings agencies were extremely well compensated for their role in helping to create the entire subprime fiasco. But for their imprimatur of triple-A respectability on garbage paper, it could not have danced its way onto the laps of so many drooling buyers."

Apparently these comparisons offended McGraw Hill's delicate sensibilities, so Ritholtz agreed to excise the inflammatory passages and beef it up. He filed a new, longer version of the section.

Yet Ritholtz says it still was a no-go. Suddenly, he says, McGraw Hill editors were indicating that his assertions couldn't be verified. "All the conversations I had with them, they made apparent this was all about S&P's role as sister company," Ritholtz says. "It had nothing to do with sources and footnoting.

"For anyone to suggest to verify this is difficult obviously has never used Google," Ritholtz adds.

The writer says he has indications of interest from other publishers.

"We made all these changes and turned it into something that was much more damning: The hyperbole goes away," Ritholtz says. "I think they would have been better off where I'm just looking like a maniac.

"Instead," he adds, "it's all facts and figures and data and it's much worse, much more dangerous to them."

by Jesse Eisinger

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