CREDIT RATING AGENCIES AND THE FINANCIAL CRISIS ...

86Mr. KUCINICH. Because we know that Wall Street has been tryingto grab Social Security forever. Imagine, Mr. Chairman, if wehad gone along with these privatization schemes and all the peopleon pensions in the United States lost their Social Security benefitsbecause the market crashes.Here we have Moody’s—according to this article, Moody’s is involvedin promoting not only privatization of Social Security butprivatization of Medicare. If we privatize Medicare, the insurancecompanies Moody’s rates can make more money. You privatize SocialSecurity, Wall Street investors make a windfall.Now this racket known as ratings has not just a whiff of fraud,as pointed out by Mr. Cummings in a conversation with Mr.Tierney, but if the investment banks are paying to get a form ofa high rating, that is kind of extortion. If they pay to make sure—can they also pay to make sure their competitors get low ratings?Which would be a type of bribery.If Moody’s could essentially offer credit to rate someone and thenif they don’t accept the rating, give them an adverse rating, thatis a form of a racket. And if they could go to the U.S. Governmentand tell the U.S. Government either you go along with privatizationof Social Security and Medicare or we are going to downgradeyour rating. I mean, this is criminal.Mr. Egan, would you like to comment on that?Mr. EGAN. You have a current example of that process wherebyreportedly S&P and Moody’s went to the monoline insurance companies,the MBACs and the MBIAs, and said—they were at thattime involved only in municipal finance—and said that if you don’tget involved in structured finance we’re going to have to take anegative action on you because your funding sources aren’t sufficientlydiversified. A core aspect is do they really believe it or werethey pressuring them to bolster the structured finance market?Don’t know. But your point is well taken that they can abuse thepower that they have.And, by the way, the best source of information on Hannover reinsuranceis an article by Al Klein in the Washington Post. It isprobably about 2 1 ⁄2 years ago. And there is a subtlety. Because thiscame up when I testified in front of the Senate Banking Committee.The subtlety was that Moody’s was providing a rating for HannoverRe but is looking for additional compensation on anotherform of rating. I think—what was it—their insurance side. Butthey wanted to be rated, I believe—they wanted to be paid for therating on the debt side.So Moody’s answer was we are already being paid, but the responsewas a little bit more nuanced than that. They wanted to bepaid on the more lucrative part, the one where they had the moreextensive relationship; and, according to Al Klein’s story, they tooknegative action while S&P and I think it was A.M. Best did not.Basically, the opportunity, the means for mischief is there. Andthat is why we press that there at least be one rating that has theinterest of the investors at heart. Because you can check thesethings. You say, hey, wait a second. This is a real credit rating andforget about this nonsense that is going on.Chairman WAXMAN. Thank you, Mr. Kucinich. The time has expired.VerDate 11-MAY-2000 12:35 Aug 24, 2009 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6633 U:\DOCS\51103.TXT KATIE PsN: KATIE