Moody’s Investors Service Inc., Standard & Poor’s and Fitch Inc. have reached settlements with the State of Connecticut resolving claims that the credit rating companies unfairly gave lower ratings to public bonds. Connecticut sued Moody’s, S&P and Fitch, claiming that because of deceptive practices by these companies, the state, municipalities and school districts paid higher interest rates than they should have on bonds they issued, and bought unnecessary bond insurance.
Former Connecticut Attorney General Richard Blumenthal sued the ratings agencies in July 2008, calling the system “a secret Wall Street tax on Main Street.” The current Attorney General George Jepsen obtained the settlement, under which the companies will credit Connecticut about $900,000. That will be used to offset the expense of obtaining future ratings on the sales of state bonds.
A number of officials including U.S. Representative Barney Frank, Bill Lockyer, California’s treasurer, and others had complained that the credit-rating companies systematically graded municipal bonds lower than corporate bonds, forcing government borrowers to pay higher interest rates. Moody’s, S&P and Fitch were also key players in the mortgage-backed securities meltdown that recently occurred on Wall Street. These rating agencies put profits over integrity and failed to perform their important debt rating duties honestly and objectively. This is just one more example of why Wall Street needs more regulation and oversight, not less.
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