CREDIT RATING AGENCIES AND THE FINANCIAL CRISIS ...

102ferentiated defaulters from nondefaulters. That’s the job of the ratingsystem.The track record is what allowed the reputation to grow. Theybuilt that reputation and milked it for what they could, and startedlowering standards. But over time credit analysis is a reputablediscipline. It think it’s doable. It’s just, you know——Mr. SHAYS. They have no brand, they have no credibility whatsoever.I can’t imagine any investor trusting them.Mr. FONS. It’s going to be a while to build that up, I agree.Chairman WAXMAN. The gentleman’s time has expired.Ms. Norton.Ms. NORTON. Thank you, Mr. Chairman. I think this hearing isabout something that’s been on the minds of lots of people in tryingto figure out how did this happen, and they go back to the creditrating agencies and the enormous, apparently undeserved, respectthey have enjoyed.I want to ask about a word I have not heard before, ‘‘ratingswithdrawal,’’ where apparently after a credit agency rates a security,the agency can be terminated if there is a threat to downgradethe security.I’m not making this up. This is true. I want to refer to a few examples.The New York Times reported on Mrch 8th that the world’s largestbond insurance company, MBIA, fired Fitch ratings becauseFitch was considering downgrading the company’s bonds from triple-Ato some lower rating of some kind. According to the Times,all three rating agencies had rated MBIA’s bonds but only Fitchwas considering a downgrade.And I’m familiar with that happening in cities and States all thetime. One rating agency does one thing and the others don’t.Mr. Egan, you mentioned this specific incident, I believe, in yourwritten testimony. How does it affect an agency’s ratings if thatagency knows it can be fired anytime it downgrades a bond?Mr. EGAN. You have to assume that it’s considered very carefully.If you’re relying on the issuers for compensation, you hate to seethat revenue go away.In our case, we never had MBIA at triple-A. It never rose to thatlevel. I think our current rating is down about single B or thereabouts,which is about nine notches, which is lower than the others.That’s a Grand Canyon-type difference. They never fired us—that’s MBIA—because they never hired us.So far as your specific question about firing, yes, it would havea big impact.Ms. NORTON. It seems——Mr. FONS. We have policies that we would not withdraw a ratingjust because somebody said, you’re fired. If we believe and we hadenough information to rate the thing at Moody’s, we would continueto rate it. They couldn’t fire us.They could fire us, they could not pay us, but we could still offerour opinion and express our first amendment right.Ms. NORTON. But then you would have the situation that Fitchhad where apparently it tried to keep a company called Radian,even without the company’s cooperation. And don’t you have tohave the company’s cooperation?VerDate 11-MAY-2000 12:35 Aug 24, 2009 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 U:\DOCS\51103.TXT KATIE PsN: KATIE