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Honest Rating Agency Is Punished for Telling the Truth

Posted By Washingtons Blog On January 24, 2013 @ 1:30 am In Analysts,Bailouts,Credit,Think Tank | Comments Disabled

While Hooey-Peddling Agencies Are Rewarded

The big 3 government backed ratings agencies (technically known as Nationally Recognized Statistical Rating Organization [1]) – S&P, Moody’s and Fitch – all committed massive fraud, which was a prime cause [2] of the 2008 economic crash.

They took bribes [3] for higher ratings, “sold their soul [4]“, engaged in a “culture of covering up improper ratings [5]“, and said that anyone who believed them was an idiot [6].  And see this [7].

They also played games [8] to avoid downgrading U.S. credit.  Basically, they scratched the government’s back, so the government scratched their back [9].

On the other hand, government-backed rating agency Egan-Jones has consistently been more honest and forthright in its ratings of countries and corporations, and more aggressive than Moody’s or S&P in downgrading U.S. credit [10] (and see this [11]).

So guess which rating agency just got stripped for a year and a half of its government-backed rating agency status?

Yup … Egan-Jones [12].

Given that the government’s whole strategy in dealing with the financial crisis is to cover up the fraud [13] (the “financial reform” legislation didn’t do anything much [14] to reform rating agency shenanigans), honesty cannot go unpunished [15].

Postscript: It is possible that Egan-Jones did something wrong. But given that the main business model of S&P, Moody’s and Fitch is fraud – and Egan-Jones is in general much more objective and honest – it is clear that Egan-Jones was singled out and punished because of its cynicism as to the creditworthiness of the U.S. and its favored sons, such as the big banks.

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2013/01/honest-rating-agency-is-punished-for-telling-the-truth/

URLs in this post:

[1] Nationally Recognized Statistical Rating Organization: http://en.wikipedia.org/wiki/Nationally_recognized_statistical_rating_organization

[2] committed massive fraud, which was a prime cause: http://www.washingtonsblog.com/2009/08/companies-auditors-rating-agencies-and-regulators-all-committed-fraud-which-helped-blow-the-bubble-and-sowed-the-seeds-of-the-inevitable-crash.html

[3] took bribes: http://www.washingtonsblog.com/2009/09/credit-rating-agencies-took-bribes-for-higher-ratings.html

[4] sold their soul: http://www.washingtonsblog.com/2008/10/ratings-agencies-sold-their-soul-joining-wall-street-and-the-government.html

[5] culture of covering up improper ratings: http://www.washingtonsblog.com/2009/09/senior-moodys-executives-theres-a-culture-of-covering-up-improper-ratings.html

[6] anyone who believed them was an idiot: http://www.washingtonsblog.com/2009/03/moodys-anyone-who-believed-us-is-an-idiot.html

[7] this: http://www.washingtonsblog.com/2011/01/financial-crisis-inquiry-commission-slams-greenspan-bernanke-geithner-paulson-summers-sec-rating-agencies-and-big-banks-for-causing-crisis.html

[8] played games: http://www.washingtonsblog.com/2009/02/moodys-plays-games-to-avoid-stripping-the-u-s-uk-ireland-and-spain-of-their-aaa-ratings.html

[9] so the government scratched their back: http://www.washingtonsblog.com/2008/12/is-uncle-sam-blackmailing-the-credit-rating-agencies.html

[10] more aggressive than Moody’s or S&P in downgrading U.S. credit: http://www.washingtonsblog.com/2011/07/american-government-endorsed-rating-agency-downgrades-u-s-credit.html

[11] this: http://www.zerohedge.com/news/egan-jones-downgrades-us-aa-aa

[12] Egan-Jones: https://www.sec.gov/news/press/2013/2013-7.htm

[13] government’s whole strategy in dealing with the financial crisis is to cover up the fraud: http://www.washingtonsblog.com/2010/11/fraud-started-at-very-top-with.html

[14] didn’t do anything much: http://www.washingtonsblog.com/2009/11/senator-dodds-bill-trying-to-prop-up-a-broken-system.html

[15] cannot go unpunished: http://www.washingtonsblog.com/2012/04/obama-has-prosecuted-more-whistleblowers-than-all-other-presidents-combined.html

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