By Philippe Herlin -
Researcher in finance / Contributor
to Goldbroker.com
The three principal rating
agencies in the world, Standard & Poor’s, Moody’s and Fitch, are well
known. But another one has garnered some attention recently... how ? By
having more insight, or less fear, than the others. It has downgraded the
United States one month before S & P, France before others, and Germany,
the last AAA of this historic trio : we’re talking about Egan Jones.
Newcomer’s arrogance or
publicity stunt ? Perhaps. Crime of lèse-majesté ? For sure. This is how one
should understand what just happened to it. The punishment is quite
severe : the Securities and Exchange Commission (SEC) has forbidden Egan
Jones to publish its rating notes on States for 18 months (SEC’s
announcement), a stupefying decision.
The Dodd-Franck rulings had
called for the SEC to encourage the existence of more independent rating agencies
in order to reinforce competition. Let’s recall to that effect that the
rating agencies had given a AAA rating to the subprime loans right up to when
the market collapsed, so they bear a part of the responsibility in the
crisis. The SEC is actually doing a u-turn here.
The reasons given by the SEC
are grotesque. Egan Jones is accused of not following some rules of
homologation, to avoid conflicts of interest; a bureaucrat found some badly
filled form. But let’s go to the root of the problem : Egan Jones does
not charge the States for its services, it does so graciously, contrary to
the three others. They are the ones swimming in a sea of conflicts of
interest !
This decision, which is a
first, reveals something much more dire. When the three top agencies were
finger-pointed following the subprime crisis, they explained that their
ratings were in fact opinions and, as such, protected by the first amendment
of the American constitution guaranteeing freedom of speech. It seems that
Egan Jones does not benefit from it.
Doesn’t forbidding Egan Jones
to publish its notes on sovereign debts equate to a limitation of its freedom
of speech ? Will a bank or an analyst be punished the same way tomorrow ?
Will they censor a TV station or a newspaper on this subject ?
The bread and butter of Egan
Jones is its businesses ratings, but the impact of this decision in terms of
image and visibility will be significant. And it will serve as a warning to
any newcomer in this business. Crony capitalism, encompassing now regulating
organisms such as the SEC, just went one step further by challenging a
fundamental right.