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Kucinich Blasts Rating Agencies

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An Ohio lawmaker has asked whether rating agencies may have had impure motives to push Congress to create private Social Security accounts.

Rep. Dennis Kucinich, D-Ohio, raised that question today during a hearing of the House Oversight and Government Reform Committee on the role of the credit rating agencies in the recent collapse of the mortgage-backed securities market.

Lawmakers on the committee and witnesses suggested that the major rating agencies may have done a poor job of monitoring the securities, in part because they were paid directly by the issuers.

Kucinich quoted from rating agency reports suggesting that the rating agencies might cut the U.S. government’s AAA rating if the U.S. government did not “reform” Medicare and Social Security financing.

The message to the U.S. government appeared to be “either you go along with privatization of Social Security and Medicare or we downgrade your rating,” Kucinich said. “Imagine if we’d gone along with these privatization schemes and all these people had lost their Social Security savings because the market crashed.”

Kucinich asked whether the same types of conflicts of interest that led the rating agencies to go easy on big issuers mortgage-backed securities might have led the agencies to help corporate issuers by pushing for Social Security privatization.

Sean Egan, managing director of Egan-Jones Rating Company Inc., Haverford, Pa., an investor-paid rating agency, said some believe that the issuer-paid agencies helped structured finance products clients by pressing municipal bond insurers to get into the business of backing structured finance products.

The rating agencies justified the demands for the municipal bond insurers to get into the structured finance products guarantee business by saying they wanted the bond insurers to diversify their sources of revenue, Egan testified.


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