Are Rating Firms Getting a Free Pass?

On Nov. 21 a court-appointed trustee estimated that at least $1.2 billion is unaccounted for at failed brokerage MF Global. Sunk by some risky bets on European sovereign debt, the firm run by former New Jersey Governor Jon Corzine filed for Chapter 11 bankruptcy late last month, the eighth-biggest failure in U.S. corporate history. While that’s tragic for some clients, it’s an outright embarrassment for the three largest ratings firms, Standard & Poor’s, Moody’s Investors Service (MCO), and Fitch Ratings. They all rated MF Global investment grade a week before its bankruptcy. “Where is the outrage?” asks James H. Gellert, chief executive officer of Rapid Ratings, which had rated MF Global at junk for two years. “Things have gotten absurd.”

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