News came Thursday that the Securities and Exchange Commission was finally going after a credit-rating agency.
Could it be that Moody’s or Standard & Poor’s was finally going to be brought to task for their role in the global financial crisis? Was the commission ready to prove that without this duopoly slapping its coveted AAA credit ratings on a whole universe of subprime slop, the housing bubble couldn’t have inflated the way it did? Will some individuals finally be called out for their culpability in the destruction of our economy?
Wishful thinking. No, the SEC decided to turn its regulatory might on a little-known credit-rater based in Pennsylvania called Egan-Jones, a firm that actually was more right than wrong about the events leading up to the Great Recession.
The SEC is charging that Egan-Jones made material misstatements in a 2008 regulatory application. It seems the SEC believes the firm “overstated its experience” in its filings for approval to rate asset-backed and government securities.
Trouble is, Egan-Jones, which gets paid by institutional investors and not by the companies it rates, has been far more prescient and skeptical than Moody’s and S&P. Back in the summer of 2008, it ranked the debt of Lehman Brothers several notches below that of its well-known New York rivals.
Egan-Jones was also the first to strip Uncle Sam of his AAA credit rating last July, more than a month before S&P did the same, and earlier this month it cut that rating once again, to AA with a negative outlook.
Sure, Egan-Jones has had some misses, too. Its red flags about the health of the trading firm Jefferies have so far proved to be way off the mark. But whatever happened to the notion that we need to shake up the credit-ratings system and encourage more choice and fewer conflicts of interest?