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Frank Bernheisel: The View From Here
Frank Bernheisel
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Frank Bernheisel
Posted 06.09.11
Just Outside Washington

FRANK BERNHEISEL

Moody's: Conflict of Interest?

Recently, Moody's Investors Service said that if Congress cannot make deal to raise the debt limit in the next few weeks, the nation's credit rating could be endangered. Further, Moody's said that a long-term deficit-reduction deal must be reached as part of a deal to raise the $14.3 trillion limit if the nation wants to protect its perfect AAA rating.

Moody's also said: "The heightened polarization over the debt limit has increased the odds of a short-lived default. If this situation remains unchanged in coming weeks, Moody's will place the rating under review."

I have several thoughts on this:

1. This sounds like political blackmail-- "do deficit reduction or we lower your credit rating so you pay more interest."

2. Moody's is often called an Agency but is in fact a division of a profit making corporation traded on the New York Stock Exchange.

3. Moody's is one of the three rating companies that provided high ratings for the junk bonds that caused the financial crisis.

4. Moody's and the other rating "agencies" get paid by the people, like Goldman Sachs, who issued the bonds. Could there be a conflict here?

5. Moody's got rid of their employees that warned of the impending mortgage bond finance crash.

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