CREDIT RATING AGENCIES AND THE FINANCIAL CRISIS ...

183would trap that uneasiness and convert it into some real resistanceto giving these high ratings to these securities.Can you explain that?Mr. JOYNT. Sir, I’d like to address that if I could, because I askedearlier if I could at least represent Fitch’s position in this matter.So I think there are a lot of examples where our credit culturehas had us decline to rate securities many times. So earlier it wassuggested in 2004 that we were nuts, I think was the term. I don’tthink so. In early 2003 or 2004, our credit teams decided that wewere uncomfortable assigning our highest ratings to all base securities,and so we weren’t asked to rate any.Our market share dropped to zero as a consequence, which Ithink, to me—and I certainly accept that and was aware of it, andit was a consequence of the healthy analytical conclusion wereached—nothing to do with business.So there are structured investment vehicles that were rated. Ithink the other rating agencies rated 40 or more. We rated five, Ibelieve, because it was well known in the market our credit viewswere more conservative, and so we couldn’t reach the higher ratingconclusions that they expected.So I think there are many examples.Ms. Norton, Congresswoman Norton, suggested earlier MBIA.We changed our rating at MBIA. I personally was involved in aquite contentious—contentious public debate with the chairman ofthat company as to why we’re changing our ratings.So I think there are a lot of examples where our firm, at least,has demonstrated that when we have clear credit concerns; thenwe either lower our ratings, or we don’t move forward with ratings.Chairman WAXMAN. Thank you, Mr. Sarbanes. Your time has expired.Mr. ISSA. Mr. Chairman, how much time do I have remaining?Chairman WAXMAN. You have 3 minutes and we have one, two,three Members——Mr. ISSA. I will reserve. Thank you.Chairman WAXMAN. Ms. Watson.Ms. WATSON. Thank you so much. The committee just receiveda letter from our treasurer, Bill Lockyer, from the State of California,my State; and in this letter Lockyer is extremely critical of theway credit rating agencies are rating municipal bonds in California.Mr. Lockyer tells us that at the beginning of June of this year,S&P rated the creditworthiness of both Lehman Brothers and theState of California. S&P gave them both A+ ratings. We were 85days before we got our budget, and with a $14 billion shortfall.However, just 3 months later, Lehman Brothers filed for bankruptcy.Now here’s what Lockyer says in the letter: ‘‘How could any rationalperson believe that a long-term investment in LehmanBrothers was as safe as a long-term investment in California?’’That sounds kind of quirky. Because we’re in a little trouble, butsomething is amiss if a credit rating agency can give the same assessment.So I would like to start with Mr. Sharma. Can you please explainto me how S&P thought Lehman Brothers was such a safe bet thatthey gave it the same chances of defaulting as California?VerDate 11-MAY-2000 12:35 Aug 24, 2009 Jkt 000000 PO 00000 Frm 00187 Fmt 6633 Sfmt 6633 U:\DOCS\51103.TXT KATIE PsN: KATIE