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Credit Rating Mirages & Sovereign Illusion Defaults: Where to Perch?
There are at least 64 credit rating agencies worldwide. Many had conflicts of interest, lacked transparency or closed the corral door after the livestock left.
As many as 80% of Consumer credit rating files were found to have compromised, inaccurate or outdated information. Consumers and investors learned they cannot rely on so-called Credit Rating Agencies. Not only were these companies wrong on their AAA rated sub-prime mortgage securities, they were painfully late lowering credit ratings in response to changing credit conditions in some critical instances preceding trillions of dollars of losses.
Perhaps it is the fact AAA credit ratings were bought by the entities rated or their underwriters rather than investors.
Perhaps they hoped for short-term memories of burned investors to stay in business.
Seasoned investors recall defaulted New York City Municipal notes that required the Municipal Assistance Corporation backed by pensions and New York State in 1975, Washington Public Power Supply System “Whoops” Nuclear Plants that defaulted in 1983, with Courts holding government irresponsible and requiring utility customers to still pay interest and principle on billions of dollars of abandoned plants.
We recall Sovereign Bank Loans to Lesser Developed Country LDC debts of Argentina, Brazil, Mexico, Russia and others in the Seventies, allegedly backed by natural resources and economic growth, that tumbled into credit and currency defaults and debt forgiveness worked out by Banks, International Monetary Fund and World Bank described by some as rapacious or uneconomic in their foreclosures.
Today we consider AAA Government Agencies like Fannie Mae, Federal Deposit Insurance Corporation, Freddie Mac, Pension Benefit Guaranty Corporation or corporations like AIG, Bank America, Chrysler, CitiGroup or General Motors required bailouts while creditors and shareholders were robbed in favor of unearned employee bonuses or unions.
In response to failed Rating companies, new ones paid by investors sprang up like Weiss Ratings.
