[Mpls] Bond ratings...not worth the paper they're printed on

[Victoria Heller]

Nick Frank:  At least one rating agency lowered the MN state bond rating
under the current administration of supposedly superior financial minds.
This occurred because they refused to take action to address the structural
deficits inherent at the state level so clearly the bond houses don't just
ignore the facts.

Vicky Heller:  The bond rating agencies have missed several financial
failures, most recently FANNIE MAE, which will soon be shaving $9 billion
off of its bogus profits.  [Side note:  Steve Minn bought "credit
enhancement" for the Stone Arch Apartment bonds from FANNIE MAE, a bad
bookkeeping seal of approval no doubt.  FANNIE MAE was/is also one of two
Riverside Plaza limited partners.]

>From the Enron articles that I remembered......

"Yet earlier, in March 2001, credit analysts with S&P and Fitch told a
Fortune reporter they had no idea how Enron made its money. One reason the
credit agencies did not act earlier may be that downgrading a company's bond
rating could drive it into bankruptcy by sharply raising the costs of its
loans."

"Largely, the financial information on which we base our ratings is publicly
filed information," Moody's Fran Laserson said. "We also have meetings with
the issuers, who may choose to share issues with us, it is up to them, they
will choose their level of disclosure," she added. 

For some investors, the agency's word is a rubber stamp and nothing else.

"Most city analysts don't think much of rating agencies is the truth of the
matter they use rating agencies as an insurance device," one seasoned market
watcher said. "If things go sour, the pension fund administrator can say we
checked with the rating agency and they gave it a clean bill of health, in
other words it is not our fault." 

http://news.bbc.co.uk/hi/english/static/in_depth/business/2002/enron/36.stm

http://news.bbc.co.uk/1/hi/business/1786509.stm

The bond rating agencies have joined a number of white collar professionals
who push papers around on their desks and charge million dollar fees for the
effort.

Vicky Heller
North Oaks and Cedar-Riverside