Downgrade would help protect investors and prod Washington to fix its finances
Jupiter, Fla., May 10, 2010 — Weiss Ratings, an independent rating agency covering the nation’s financial institutions, issued a challenge today to Standard & Poor’s, Moody’s and Fitch: To downgrade the long-term sovereign debt of the United States in order to help protect investors and prod Washington to fix its finances.
“The U.S. government’s triple-A rating is an anachronism,” said Martin D. Weiss, chairman of Weiss Ratings. “Given the rapid deterioration in our nation’s finances and the spreading threat to sovereign debt overseas, the downgrade is long overdue.”
“By reaffirming the government’s triple-A rating,” Weiss continued, “the three leading rating agencies help entice savers and investors to pour trillions more into a potential debt trap, or, at best, to be severely underpaid for the actual risks they are taking. The rating agencies give policymakers a green light to perpetuate their fiscal follies, further degrading our government’s ability to meet future obligations. And, they help create a false sense of security overall. Recognizing and confronting our nation’s financial troubles with honesty is the necessary first step toward solving them.”
In “Weiss Ratings' Challenge to S&P, Moody’s and Fitch,” Weiss presents four case studies in which the rating agencies failed to downgrade large institutions in the past: (1) Major life and health insurance company failures of the early 1990s, (2) the Enron failure of 2001, (3) the mortgage meltdown of 2007-2008, and (4) the failure of Bear Stearns, Lehman Brothers and others in the recent debt crisis.
“In each case,” Weiss points out, “timely downgrades would have been beneficial to investors, to the financial markets and even to the issuers themselves. But in each case, the rating agencies’ procrastination had catastrophic consequences. We can’t afford to let the same happen to our nation’s credit.”
Among the many factors Weiss cites that mandate an immediate downgrade of long-term U.S. debt are:
* U.S. debt and deficit ratios that are equivalent — or even worse than — those of Spain, Portugal and Greece, countries that have already been downgraded by the rating agencies.
* The growing importance of bailouts for sovereign governments, coupled to the inability of the United States to acquire similar emergency financing for itself.
* America’s predicament as the world’s largest debtor nation.
* The U.S. government’s failure to pass its official audit by the Government Accountability Office (GAO) for 13 years in a row, with 38 material weaknesses found in 24 government departments and agencies.
“The case for a U.S. debt downgrade is overwhelming,” concludes Weiss in his open letter to the rating agencies, “and I challenge you to take the appropriate action. Any failure to do so can only enhance the risk of another financial meltdown for which no bailout would be possible.”
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Weiss Ratings is the nation’s only provider of independent ratings on the nation’s 900 life and annuity insurers, 2,700 property and casualty insurers, as well as 600 health insurers and HMOs. It is among the nation’s leading providers of independent ratings on 8,000 banks and S&Ls. Plus, it also distributes independent ratings on the shares of thousands of publicly traded companies, mutual funds, closed-end funds and ETFs.
By adhering to its independent business model, Weiss outperformed Standard and Poor’s, Moody’s, A.M. Best and Duff & Phelps (now Fitch) in warning of future life and health insurance company failures according to a 1994 study by the U.S. Government Accountability Office (GAO), while also outperforming its competitors in identifying the safest insurers, according to its follow-up study using the GAO’s research methodology. Similarly, Weiss was the only one to identify, in advance, nearly all major banks that failed or required a federal bailout in the 2008-2009 debt crisis. (See Weiss Warnings of Financial Failures in Debt Crisis of 2008-2009.)
Thanks to its strong track record and independence, The New York Times wrote that Weiss was “the first to see the dangers and say so unambiguously;” Barron’s wrote that Weiss is “the leader in identifying vulnerable companies;” and Esquire concluded that Weiss Ratings is “the one company [that] … provides financial grades free of any conflicts of interest.”