I have to admit to being stymied by this:

“The Securities and Exchange Commission voted Thursday in favor of bringing an administrative action against Egan-Jones, the firm said. In what would be an unprecedented move, the SEC could seek to punish the firm by stripping it of its ability to issue officially recognized ratings on securities tied to government debt and asset-backed deals. An SEC spokesman declined to comment.

The move stems from alleged “material misstatements” Egan-Jones made when it applied to regulators in 2008 to rate bonds issued by countries, U.S. states and local governments, and asset-backed securities, according to documents reviewed by The Wall Street Journal and people familiar with the matter.” (WSJ)

Here we have an allegation of a specific error, made in good faith by Egan Jones, over the course of doing business.

At the same time, we have a broad set of systemic errors made by the two much larger competitors, Moody’s and Standard & Poors. These two firms, by design, gave triple AAA ratings to piles of junk paper. They did so because that was what they were paid to do by the underwriters.

These were not good faith errors. They were instead a reflection of a wholly corrupted industry, designed to mislead investors and legitimize junk paper.  Consider what Nobel prize winning economist Joseph Stiglitz observed:

“I view the ratings agencies as one of the key culprits. They were the party that performed that alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.” (Bloomberg)

Somehow, these two whales of corruption get a pass. I don’t get it . . .

>

Ratings Let Loose Subprime Scourge

Source: Bloomberg

>

Source:
Ratings Firm Is in SEC Sights
JEAN EAGLESHAM And JEANNETTE NEUMANN
WSJ, April 19, 2012, 7:38 p.m.
http://online.wsj.com/article/SB10001424052702303513404577354023825841812.html

Previously:
Ratings Agencies: Moodys, S&P, and Fitch (ORIGINAL) (February 10th, 2009)

How Can Securitization Lending Be Made Safer ? (February 6th, 2010)

Assessing Blame (January 26th, 2011)

Category: Bailouts, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “SEC Pursues Egan Jones; Moody’s, S&P Remain At Large”

  1. MayorQuimby says:

    Pay no attention to the man behind the curtain…

  2. michael-D says:

    you don’t get it? seriously?

    barry, i like you a lot. i enjoy your commentary and am rarely able to frame an argument against you. but are you just ‘too close’ to this problem in that you’re always rubbing elbows with so many of this class? you can’t see the forest for the trees?

    i’m nowhere near so informed and educated as you but my response to this is “what took them so long?”

    the SEC appears to be a completely captured arm of the plundering class and egan jones has gone way off the reservation. its likely TPTB have been digging and searching and reviewing for ages and this is the best they could come up with. moody’s, S&P, et al have been doing their bidding and profiting handsomely. egan jones is not. SEC doesn’t regulate bad behavior. if they did the entirety of the c-suites of all the PDs would be rooming with bernie and their institutions shut down long ago.

    ~~~

    BR: Good sir, you are apparently tone deaf for snark and sarcasm.

  3. mathman says:

    If you listen to this, it’s perfectly clear why this is the case:

    http://www.youtube.com/watch?v=d3eDsWbf3Ao&feature=player_embedded#!

  4. GeorgeBurnsWasRight says:

    Time to listen to Mark Knopfler’s song, with its refrain: “Punish the monkey, let the organ grinder go.”

  5. tradylady says:

    they probably didn’t give enough money

  6. Moe says:

    Analagous to the state of heavyweight boxing right now – fighters who make too much, don’t want to fight more than once every three or four years and when they do – they find some tomatoe can nobody has ever heard of.

  7. joelandsonia says:

    How about because they put the US on the ratings downgrade path again? Retaliation pure and simple.

    Barry — come on, this was obvious.

    ~~~

    BR: S&P downgraded the US credit rating

  8. morning_star says:

    “Somehow, these two whales of corruption get a pass. I don’t get it . . .” Clearly you jest. The whales are “too big to fail,” too big to prosecute, and above all, have paid too much to various members in congress and have in essence captured the agencies that were designed to regulate them. Furthermore, government agency employees hope to curry favor with the “whales of corruption” at some future date, to be rewarded with a job that pays ten times what they earn as a government employee. So attack the small fish instead.

  9. morning_star says:

    OK, I now see in your reply to Michael-D that the last comment was sarcasm. I haven’t finished my coffee yet. Sorry.

  10. b_thunder says:

    … and this shall happen to ANYONE who has the balls to question the “Extend and Pretend” – our own model of kapitalism.

  11. ancientone says:

    Perhaps the SEC is trying to help S&P and Moody’s by eliminating the competition………

  12. thetruthseeker says:

    Why is nobody stating the obvious? Egan Jones recently downgraded the US credit rating again. You do not do this in a country run by fascists or you will pay. This event also tells me how deep in trouble we really are that TPTB are so desperate as to try to intimidate others by going after Egan Jones. But I am sure this is nothing more than a coincidence, like everything else in life according to those who worship government. Government could never do anything wrong. It always works for the good of everybody.

  13. Dima says:

    Thanks Barry,

    Keep calling out this corruption so that people who are “somewhat honest” have a chance to know who the players are and to make up their own minds. I am optimistic that most people are intelligent enough to decide that they don’t want to do business with organizations that have a long history of criminal acts and criminal behavior. Unfortunately, it seems that at this point in history, most American financial organizations and American regulatory agencies, when measured by their acts, qualify as criminal organizations.

  14. Greg0658 says:

    all of the above with:
    to many people need to much to happen .. there is one easy solution .. self destruction for the demand* of it all
    hense laws cease & desist – insurance cease & desist – HC, pension payouts cease & desist
    survival of the fittest – reboot into full corpocracy
    OR
    they are the small easy target to say to the chief “I am doing something”
    now return to building your __

    * – I really don’t think people wanna go there – but it is the easy answer
    *2 – I think many TBTF think they have the staying power behind their must have gated product compounds

    psst – fyi – war is the greatest mindset alignment tool

  15. Liquidity Trader says:

    I am astounded that some of the readers here are so utterly tone deaf to sarcasm.

    It is quite amazing

  16. mitchw says:

    ‘I don’t get it.’

    Can I use that, Barry?

  17. Greg0658 says:

    morning_star at 8:38 am – “OK, I now see in your reply to Michael-D that the last comment was sarcasm. I haven’t finished my coffee yet. Sorry.”

    right – just like Ted Nugent comments was for the show and the bucks

  18. Moe says:

    Analagous to the the current heavyweight boxing scene – fighters making absurd money, fight every three or four years (IF you are lucky) and when they do fight, they find some tomatoe can nobody ever heard of.

  19. Totally agree, especially since the majors all have the sell-side model. Egan Jones not only offers competition, it also offers an alternative. What better way to keep the majors honest than to rev up a little competition.

  20. Expat says:

    I think the flippant attitude and sarcasm when discussing such a serious problem are misplaced and inappropriate. Ratings agencies are an integral part of our financial system and must maintain a high level of integrity and professionalism. If they were to falter, it would be a pathway to corruption, financial fraud, and excessive risk-taking on Wall Street. Imagine the consequences of that! Hard to, isn’t it?

    I suggest we write to our congressmen and express our concerns. A dozen letters from well-informed and well-intentioned citizens will put paid to this nonsense!

    ~~~

    BR: Holy shit, that is fucking hilarious . . . Good one!

  21. SOP says:

    THANK you Barry for this succinct snapshot of Our Criminal Government at work.

    The SEC can do whatever it wants – Homeland Security has their back .

    Obama’s Little Gestapo is locked and loaded. ” Occupy Wallstreet” my ass…

    —————
    ATK (ATK +0.14%) announced that it is being awarded an Indefinite Delivery/Indefinite Quantity agreement from the Department of Homeland Security, U.S. Immigration and Customs Enforcement (DHS, ICE) for .40 caliber ammunition.

    This contract features a base of 12 months, includes four option years, and will have a maximum volume of 450 million rounds…

    http://www.marketwatch.com/story/atk-secures-40-caliber-ammunition-contract-with-department-of-homeland-security-us-immigration-and-customs-enforcement-dhs-ice-2012-03-12
    ——————-

    Maybe they are expecting an invasion of 400 million illegal aliens ?!?!?
    (ht mathman)

  22. Moss says:

    Egan is NOT bought and paid for by the financial elite. Instead they are independent, not captured by the corrupt ‘system’ . This blatant misuse, and misapplied authority by the SEC needs to be called out.

  23. Equityval says:

    This is all of a piece with investigating the short sellers for having the temerity to point out the flaws in the banks, and then outlaw their activity. Round up the usual suspects, there is gambling in the casino.

    I’m sure they will be getting a visit from the IRS shortly, just to rub salt in the wound.

  24. Expat says:

    Barry,
    I have no idea what you are talking about. Can you name one instance when I have been sarcastic, bombastic, or insincere on this blog?

    ~~~

    BR: I was referring to my own sarcasm.

  25. inessence says:

    @SOP…half of that order was to restock my personal ammunition cache…

  26. ConscienceofaConservative says:

    I’m with you on this. I don’t get it, unless regulators are helping out the big players and making life difficult for a new comer.

  27. FredC says:

    Egan-Jones: the Martha Stewart of rating agencies.

  28. louis says:

    @ BR “Holy shit, that is fucking hilarious . . . Good one!”

    Classic

    http://www.youtube.com/watch?v=GG3sWOUal-s

  29. picassoinactions says:

    if they punish Egan it will send a strong signal to other criminals not to downgrade US.
    Not like pornoSEC has a choice. Plus Egan agency is more aggressive than others and they need to slow down the process of downgrades.

  30. notakid says:

    To be tossed from such a “club” would be a badge of honor.

    I expect Egan to become the one that people would listen to soon.

    Some clubs you don’t want to be in.

  31. Robert in Chicago says:

    “Stymied”??

  32. san_fran_sam says:

    You don’t get it?

    You of all people should know that the Golden Rule applies. He who has the gold makes the rules.

  33. tooktheredpill says:

    hey, i didn’t think that anyone worked at the SEC anymore.

  34. tooktheredpill says:

    cheers for the blog btw – probably the most unbiased I have come across.

  35. AHodge says:

    egan is the biggest of the agencies that are not worth less than zero
    i am starting to think we can do without the SEC ?
    theres my government economy measure,
    dissapear an agency the SEC
    at the least you can fire all them
    reorganize
    and selectively hire some back

  36. socaljoe says:

    I don’t get it either… do they really believe that the public is too stupid to see that this is obviously retaliation and attempted censorship?

  37. Expat says:

    Barry, Ha! You fell for the second post, too! I was still being facetious.
    Actually, rereading your comment to my second post, I now wonder if YOU were joking. That’s the problem with this kind of humour; you enter the labyrinth of mirrors and can’t tell friend from foe or joke from serious statement.
    It’s past midnight here, though, so this thread will have to die.

  38. philipat says:

    It does seem that Americnas in general are not good at detecting and processing sarcasm. There is no way the SEC can make this stick and, ultimately for EJ,l to misquote Gruacho Marks “They don’t want to be member of a Club that would let them be a mamber”.

    Another striking example of just how broken and corrupt the US has become.

  39. oldbluejeans says:

    Martin Weiss, are you listening here? I am shocked, shocked I tell you that anyone would dare to downgrade US debt. And Martin, you might be next in SEC gun sites.

  40. [...] Barry Ritholtz (NDLR : star du Blog The Big Picture) : “Here, we have an allegation of a specific error, made in good faith by Egan-Jones, over the [...]