Wednesday, January 23, 2013

Securities Exchange Commission
Bans the Wrong 
Rating Agency !
Barry Ritholtz (AA) & the WSJ report that the SEC has suspended small credit ratings firm Egan-Jones from issuing any official ratings on bonds by countries, U.S. states, local governments, securities backed by mortgages - the ban will last the next 18 months .. "The major credit rating agencies were the prime enablers of the credit crisis. They put Triple-AAA ratings on securitized sub-prime mortgage bundles, primarily because they were paid by the underwriters to do so. But for those actions, much of the securitized junk would not have been able to be purchased by the many bond funds, pensions and other large institutional investors mandated to buy only Investment grade paper. Thus, what should have been a tiny, high risk corner of the mortgage market instead became an enormous, A-rated, mainstream asset class for yield hungry fixed income managers. This is why S&P and Moody’s are thus amongst the prime causes of the financial crisis of 2008-09."
[A Rare Cliff Rant: We try to communicate some specific theme points & we have often claimed that we do it without 'taking sides'; an unbiased & level headed fashion. One of our theme points has been how 'MAD' (as in insane) things can be when free markets are manipulated by assigned authorities. When it comes to the Credit Rating Agencies that have the governments 'sanction' (S&P, Moodys, Fitch), it seems impossible to remain level headed. What they did was fraudulent, but it doesn't get them in prison because it is 'sanctioned' by the government. They made money by assigning AAA credit ratings to investments they knew were NOT AAA. If any 'free market' person or company had done the same, it would be fraud, punishable with prison. They participated in a system-wide swindle of the innocent people. It was like a 'STING' operation on every trusting investor in the world. It was not prosecuted as a crime because the whole financial system aided, abetted & profited  from the crime. This latest move seems to reveal who's side the SEC is on; NOT on the side of the public!
Most people think government protects them, but a shrewd Consigliore once told the Godfather: "the trust of the innocent is our most useful tool". So .. Wake up & smell the coffee. Hundreds of billions of $ of bonds were sold to the public as 'AAA' that the government sanctioned 'raters' knew was no such thing. Who could possibly be more directly responsible for the great Financial Foul Up than the Bond Rating Agencies? The culprits are protected by THEIR government. The 1% are protected; the 99% got swindled.]
LINK HERE to one of our prior postings

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