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Hey, Can We Get A Little Respect Here?

January 7, 2012

by David W.

If they were a baseball team they would be the Chicago Cubs.

If they were an automobile they would be the Edsel.

If they were a movie, they would be “Heaven’s Gate”.

If they were a comedian, they would be Rodney Dangerfield.

They dream about being Lindsay Lohan’s driving test inspector, a Dancing with the Stars judge when its Chaz Bono’s turn, an NFL referee when Ndamukong Suh is on the field, or a TV critic reviewing the new “Jersey Shore” premiere.

They revel in Tim Tebow’s quarterback rating, Charlie Sheen’s Q scores, Jon Huntsman’s caucus vote count in Iowa, and the HH viewership for Keith Olbermann’s new show on Al Gore’s Current TV Network.

They would love to downgrade the credit ratings of every known sovereign entity around the globe, with the possible exceptions of Switzerland, Monaco, the Vatican City and Barbados.

However, can they ever get it right?

Of course we are talking about the major credit ratings agencies, which have confounded and bewitched the markets with the threats of imminent downgrades to anything with a pulse.

According to a recent report by the Center for American Progress:

“Credit agency ratings don’t appear to add any value over information on government creditworthiness already available in financial markets, and they being wrong in their subjective assessments pose real economic costs. Higher interest rates on government borrowing mean more taxpayer money gets paid to financial investors rather than being spent on needed public services and programs. Paul Krugman’s hunch is right: S&P assessments aren’t worth too much with respect to the risk of sovereign default.”

 

But where are they when there is the very real threat of a company or nation really going down? Famously they missed on Lehman, AIG and the mortgage debt crisis. And going back some in history, the CPA Journal had this to say several years ago:

“Credit rating firms are partly blamed in recent major corporate failures for their lack of diligence in identifying credit problems. Indeed, Standard & Poor’s (S&P) and Moody’s did not reduce Enron’s credit ratings from investment grade to junk level until four days before Enron’s doors shut. Considering that WorldCom and Global Crossing were also rated investment grade only months before bankruptcy, an unfavorable pattern emerges.”

 

Which brings us to the present day and the latest example of “getting it wrong” when it might really make a difference for the safety of investors and the general financial community. According to a recent Bloomberg report, senior executives at Moody’s and S&P will be called upon to testify about their role in the MF Global mess.

“The House Financial Services Oversight and Investigations subcommittee sent letters on Dec. 27 to Douglas Peterson, S&P president, and Raymond McDaniel, Moody’s chief executive officer, asking what the credit-rating companies knew about the MF Global bet on European sovereign debt that led to the brokerage’s failure. Congress seeks to determine ‘whether the ratings somehow failed to live up to the trust that investors placed in them’.”

 

In a way we feel a little sorry for the ratings agencies with all the piling on and hope they don’t get a real complex here.

Or they could end up echoing the famous words from the immortal Rodney:

“I told my psychiatrist that everyone hates me. He said I was being ridiculous - everyone hasn't met me yet.”

Good Trading!
David W. (aka The Underground Trader)

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