Ratings matter, or they don’t.

The sad part is this wasn’t found during the application process.

So either the vetting was incomplete, or they saved this revelation to torpedo Egan.

You decide.

SEC Charges Credit Rater Egan-Jones – Reuters, April 24, 2012

The SVS alleges that the two rating agencies misled investors for ratings they had assigned to Empresas La Polar SA. La Polar is embroiled in what the company’s current president, Cesar Barros, describes as “the biggest fraud of a publicly traded company in Chile.”

In June, La Polar broke the unexpected news that it needed to reserve nearly $900 million to cover bad credit card loans. At the same time, they admitted that they had overcharged one million low and middle-income consumers for past-due store credit card bills; this in a country of only 17 million.

Before the scandal broke, Fitch had rated La Polar A-minus with a negative outlook; Feller-Rate had assigned La Polar’s debt as BBB+ and stable. They both now rate the debt as D.

SVS believes that the rating agencies should have spotted the “inconsistencies.” They said in a statement that, “The SVS feels there is enough evidence to believe Feller and Fitch didn’t comply with the law that establishes an obligation for ratings agencies to give an informed and independent opinion.”

Those close to the regulators cautioned that this latest draft could still change.

Regulators are eager to enforce the new standards to correct what they feel to be contributing factors that led to the financial crisis. They believe that the ratings agencies have grown too close to the companies they are hired to evaluate and are unable or unwilling to provide an accurate assessments of structured credit products.

European corporations complain that the regulations are onerous, politically motivated and that they will be forced to rely on little-known rating agencies or to offer fewer ratings to investors. This, they argue, will make it more difficult to access global capital markets.

A spokesperson for S&P emphatically stressed that the message was a technical error and cited the fact that France’s AAA rating on the agency’s web site was never changed. The error did cause French bond yields to rise slightly higher.

CNN quoted the blistering comments by European Commissioner Michel Barnier: “This incident is serious and it shows that in the current tense and volatile market situation, market players must exercise discipline and demonstrate a special sense of responsibility.”

The EU is already considering regulation to increase transparency and oversight for how rating agencies evaluate sovereign debt. The agencies strongly oppose these changes; however this snafu is likely to make regulators’ positions still more difficult.

If you don’t like the opinion, BAN IT.

This fits the storyline that the problems in markets are the rating agencies’ fault.

Let’s recognize that governments enshrined ratings by the NRSRO designation.

Central planners need to answer this question. Ratings are an opinion, or they aren’t.

My guess is establishment of an official, “GSE-like”  rating agency…

That will solve everything…

Europe Seeks to Reduce Debt Ratings’ Influence - New York Times, February 29, 2012

We don’t want your opinion unless we ask for it.

More of the same. The problem is the rating agencies, not the profligate spending of the politicians. 

Credit-ratings companies should be banned from rating sovereign debt unless they have been contracted to do so by the country concerned, a European Union lawmaker said in a draft report on proposed EU rules. Leonardo Domenici, who is responsible for steering rules on credit-rating companies through the European Parliament, called for the measure to be added to last year’s proposals from the European Commission. Domenici also said either “an independent public European credit rating agency” or “an existing independent Union institution shall be entrusted, with the task of assessing the creditworthiness of Member States’ sovereign debt.” Domenici’s report will be voted on by other members of the parliament. The assembly, together with EU ministers, must agree on the final wording of the proposed law before it can be implemented.

-From Bloomberg News, “EU Parliament Report Targets Curbs on Sovereign-Debt Ratings” by Jim Brunsden, Feb. 17, 2012

Regulators are empowered to oversee the safety and soundness of regulated entities and are charged with intervening if there is a problem. Rating agencies observe this process as a third party.

Let’s have hearings and ask all three parties what they know and when they knew it.

Rating agencies publish ratings opinions.

Regulators monitor safety and soundness.

There is responsibility and blame to be assigned in this collapse. Let’s make sure it’s assigned to ALL responsible.

Congress Presses Rating Firms – The Wall Street Journal, January 5, 2012

Let’s give the EU the ability to temporarily “ban” ratings on sovereign debt if they don’t like the ratings.

Let’s open rating agencies to liability, where THEY have to defend against a standard of proof that there wasn’t “gross misconduct.”

Let’s have the EU add more rules to “increase competition.”

The logic appears impossible.

The EU farce continues.

EU Proposes Rating Agencies Can Be Sued – The Wall Street Journal, November 15, 2011

First, he discussed how much had been done to address the root causes of the 2008 financial crisis that sparked the recession including a “substantial program of financial reforms” that had led to a significant improvement in the U.S. banking system and financial markets.

However he believes that “financial stress” continues to negatively impact the recovery, both in the U.S. and abroad. “Bouts of sharp volatility and risk aversion in markets have recently re-emerged in reaction to concerns about both European sovereign debts and developments related to the U.S. fiscal situation, including the recent downgrade of the U.S. long-term credit rating by one of the major rating agencies and the controversy concerning the raising of the U.S. federal debt ceiling.”

He admitted that the impact of these events can’t be judged exactly, however, “there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth.”

Mr. Harrington, who resigned in 2010 after 11 years with Moody’s, said in a statement filed with the Security and Exchange Commission (SEC) that Moody’s had a culture of “intimidation and harassment” to ensure analysts awarded ratings that were wanted by clients. He said that the compliance department would “actively harasses analysts viewed as ‘troublesome.’”

He continued to explain that, “This salient conflict of interest permeates all levels of employment, from entry-level analyst to the chairman and chief executive officer of Moody’s corporation.”

In his 78-page filing, he also said, “The goal of management is to mold analysts into pliable corporate citizens who cast their committee votes in line with the unchanging corporate credo of maximizing earnings of the largely captive franchise.”

Mr. Harrington’s opinion must be taken in the context of a former employee.