Why is this all happening? Because without those ratings the bond insurers could not get new business - and banks, already suffering massive casualties on their balance sheet would be forced to write down even more - a position some could not handle. So the mirage of AAA ratings continues... all in wink wink style.
Now to the title of this entry... in something that is so outrageous you almost have to laugh, MBIA (MBI) has asked one of the main rating agencies to STOP RATING it. hah! "We don't like what you have to say about us, so please... stop saying anything!" or "If you don't have something nice to say about someone, didn't your momma tell you not to say anything!" Honestly, this is so amazing and speaks to the shockingly pathetic state of our financial system - the wink wink, nod nod system keeping it all going with duct tape and staples. But it is amusing if nothing else....
- In the latest salvo in a now highly public war of words, ratings agency Fitch said it will continue to rate MBIA Inc.'s subsidiaries without charge, despite the bond insurer's request that it stop.
- The increasingly confrontational dialogue was initiated on Friday when MBIA asked Fitch in a letter to stop providing some ratings on the firm. That letter, released to the public, also asked Fitch to return or destroy data MBIA had provided to Fitch.
- In response, Fitch CEO Stephen Joynt said the agency plans to keep rating the bond insurer and questioned the company's reasons for trying to end their relationship. "It seems disingenuous at best to assert in your letter to investors published yesterday, March 9, that you 'intend to work with Fitch to perform the analysis needed to rate MBIA's debt securities,' while privately demanding return of the portfolio information and materials that you freely provided to support our ratings and that of other rating agencies for many years," Joynt wrote.
- Most ratings agencies are paid by the companies they analyze. That's created the perception of a conflict of interest because agencies may be less inclined to come out with lower ratings because they don't want to upset the firms that pay them.
- Ratings agencies also get confidential information from companies to help them produce more accurate ratings. But when companies restrict information to some agencies, as MBIA is doing with Fitch, the system may become even more skewed.
- One way around that is to introduce rules that require equivalent disclosure. When a company provides information to one rating agency, it has to give that to all other regulated agencies too -- probably via some sort of database, Mason explained.
- MBIA's request that Fitch destroy information suggests the company is very keen to stop the agency from rating it in future, Mason said. "It's expected that this information would remain confidential, but to ask that it be destroyed is really going the extra mile to stop Fitch rating them on an unsolicited basis," Mason said. "This betrays the bias that's currently in the system," he added. "MBIA is saying that because you're not financially tied to us anymore, we really don't want you rating us."
- "This whole controversy highlights the problems that exist with the industry structure, whereby a company can silence a rating firm if that company doesn't like the rating that's being generated," Egan said.
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