Bloomberg
By William D. Cohan
The Securities and Exchange Commission, it seems, has finally lost its mind.
Motivated by what I consider pure maliciousness, the SEC initiated a “cease and desist” administrative proceeding it deemed “necessary for the protection of investors and in the public interest” against Egan-Jones Ratings Co., a privately owned, 20-person firm based in Haverford, Pennsylvania, and against its principal owner, Sean Egan.
Egan-Jones, founded in 1995, is one of nine ratings companies that the SEC has accredited as “nationally recognized,” allowing the firm to rate the debt of sovereign nations, companies and asset-backed securities, among others. Notably, it is the only one of the nine that gets paid by investors instead of by the issuers of securities.
The bigger and better-known ratings companies -- Standard & Poor’s (owned by McGraw-Hill Cos. (MHP)), Moody’s Corp. (MCO) and Fitch Ratings Ltd. -- are paid by the Wall Street banks that underwrite the debt securities of corporate issuers. That is, the companies are beholden to the sellers of the products they are supposed to pass judgment on, not the buyers. That’s akin to allowing the Hollywood studios to pay the nation’s film critics for their opinions.
Shopping Around
We all saw the result in 2007 and 2008. A major cause of the financial crisis was that S&P, Moody’s and Fitch, while being paid hundreds of millions of dollars by Wall Street, gave AAA ratings to complicated, risky securities that turned out to be anything but AAA. If a big bank didn’t like a proposed rating, it just shopped the deal
http://dailybail.com/home/sec-sues-the-only-rating-firm-not-on-wall-streets-payroll.html
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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