The Truth About Egan-Jones

Tyler Durden's picture


... but not from us: after all we are known for being biased, which in the mainstream media parlance means calling it like it is. No - instead we leave it to none other than Bloomberg's Jonathan Weil who does as good a job of being "biased" as we ever could: "Egan-Jones, which has been in business since 1992, could have continued operating as an independent publisher of ratings and analysis, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to regulation and the whims of the SEC in exchange for the government’s imprimatur. Now it’s paying the price." And not only that: as the most recent example of Spain just shows, where Egan Jones downgraded Spain 9 days ago and was ignored, but well ahead of everyone else, only to be piggybacked by S&P, and the whole world flipping out, it has become clear: calling out reality, and the fools that populate it, is becoming not only a dangerous game, but increasingly more illegal. Then again - this is not the first time we have seen just this happen in broad daylight, with nobody daring to say anything about it. In fact, this phenomenon tends to be a rather traditional side-effect of every declining superpower. Such as the case is right now...

From BBG's Jon Weil:

The first time I wrote about Sean Egan and his small, independent credit-research firm, Egan-Jones Ratings Co., was in December 2007 for a column about the bond insurer MBIA Inc. (MBI) And man, did he nail it.


The three big credit raters -- Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings -- all had AAA ratings on MBIA’s insurance unit, their highest grade. Egan said it deserved much lower. Anyone reading MBIA’s financial reports could see the company was losing money and needed billions of dollars of fresh capital.


By mid-2008, the Big Three had cut their ratings. Once again, Egan, a lonely voice of reason who saw the financial crisis coming, had shown his larger competitors to be incompetent or compromised. It was one of many great calls to come for Egan-Jones. As for MBIA, which had no revenue last quarter, it’s still struggling.


So if you had told me back then that the Securities and Exchange Commission’s enforcement division more than four years later would be accusing Egan, and his firm, of securities-law violations -- but not any of the big rating companies -- there’s no way I would have believed you. That’s what happened this week, though.


Join The Club


In 2010, the SEC issued an investigative report that said a Moody’s rating committee in 2007 knowingly decided to keep inflated ratings on about $1 billion of complex notes after discovering an error in one of the firm’s models. Later in 2007, Moody’s applied to the SEC for national recognition, under the same 2006 federal law on credit raters that Egan-Jones saw as its chance to join the same club as the Big Three.


The rating process used by Moody’s in that instance violated the policies described in the company’s application, the SEC said. However, the report said the agency decided not to accuse Moody’s of violating any laws, because some of the conduct occurred outside the U.S., presenting jurisdictional hurdles. Lucky break, I guess.


Egan-Jones isn’t the only credit rater where the SEC has identified problems related to employees’ investments. In a report last September, the SEC’s staff said it found that “each of the three larger NRSROs and four of the smaller NRSROs appeared to have some weaknesses with respect to their employee securities ownership policies and procedures.” (In September 2010, the SEC reached a settlement with another small credit- ratings company, Lace Financial Corp., over allegations of misstatements in its application for SEC recognition.)


The way Congress and the SEC have rigged this game, nationally recognized credit raters are a unique species of opinion merchants, endowed with sweeping authority and special privileges. Institutional money managers often are required by law to abide by their judgments. The better approach would be to scrap the designation, so investors are encouraged to do their own homework, rather than use credit ratings mindlessly.


Egan-Jones, which has been in business since 1992, could have continued operating as an independent publisher of ratings and analysis, not subject to government oversight or control. Instead it chose to play within the Big Three’s system, exposing itself to regulation and the whims of the SEC in exchange for the government’s imprimatur. Now it’s paying the price.

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Fri, 04/27/2012 - 11:15 | 2380243 tu-ne-cede-malis
tu-ne-cede-malis's picture

The enemy of my enemy is my friend.  Keep it up, Egan and crew.

Fri, 04/27/2012 - 11:25 | 2380279 SHEEPFUKKER

The path to truth is a long and winding road. 

Fri, 04/27/2012 - 11:32 | 2380299 nope-1004
nope-1004's picture

Declining superpower for sure.  Forcing the world to buy oil in USD, then using those proceeds to build a military complex to turn around and invade you is not really what I would call a "super power".  Master Manipulator, maybe, Super power - no.



Fri, 04/27/2012 - 11:56 | 2380378 The Big Ching-aso
The Big Ching-aso's picture



"How many fingers, Winston?"

Fri, 04/27/2012 - 11:58 | 2380384 fightthepower
fightthepower's picture

Zerohedge is going to be raided and shut down by the government soon. 

Fri, 04/27/2012 - 11:59 | 2380389 Dr. Engali
Dr. Engali's picture

Shit I'll giveyou one better than that. How about a declining super power engaging with an ex super power to invade your ouwn country:

Fri, 04/27/2012 - 12:22 | 2380454 imaginalis
imaginalis's picture

Super Punks

Fri, 04/27/2012 - 11:59 | 2380388 hawks5999
hawks5999's picture

What is truth?


Fri, 04/27/2012 - 12:02 | 2380404 Benjamin Glutton
Benjamin Glutton's picture

The greed of a few outweigh the crimes against humanity.

Fri, 04/27/2012 - 11:35 | 2380306 HarryM
HarryM's picture

Classic Obama move - where is the Media outrage?

Fri, 04/27/2012 - 11:43 | 2380326 BlueCollaredOne
BlueCollaredOne's picture

Banks own the media, as well as the office of president. The media is for reinforcing status quo, as well as making us afraid of brown people. The president is there so we can have someone to point a finger at and blame, which your post presents a fine example of

Wake the fuck up.

Fri, 04/27/2012 - 12:00 | 2380397 Waffen
Waffen's picture

Who own the banks that own the media?

Fri, 04/27/2012 - 12:23 | 2380457 imaginalis
imaginalis's picture

The shadowy figures who own the intelligence agencies

Fri, 04/27/2012 - 14:55 | 2380832 boogerbently
boogerbently's picture

Egan-Jones for president!

Fri, 04/27/2012 - 12:51 | 2380462 prains
prains's picture

the balm on my palm is the lube for my tube. _ E-J

Fri, 04/27/2012 - 13:46 | 2380642 Mentaliusanything
Mentaliusanything's picture

shit I had better stop reading Zero hedge. Telling truth might become a hazard. Ah fuck it Ive been around a long time First as a lurker then as a member. You know what has me thinking .... who gave me the pill. 

I can't for the love of me understand how I got into this cognitive disonance.


Guess Im just Lucky

Fri, 04/27/2012 - 14:57 | 2380841 gmrpeabody
gmrpeabody's picture

"Guess Im just Lucky"

Is that you on the left..., or the right?

Fri, 04/27/2012 - 20:06 | 2381444 Not Too Important
Not Too Important's picture

Do not diss the Congnitive Disonance. All hail CD!

Fight Club rules:

Fri, 04/27/2012 - 11:15 | 2380246 taniquetil
taniquetil's picture

Of course the SEC's just going to go after the small guy. If they went after the Big Three it would cut into their porn-watching time.

Fri, 04/27/2012 - 11:25 | 2380280 buzzsaw99
buzzsaw99's picture

The big 3 and the sec are all on the squid's payroll.

Fri, 04/27/2012 - 11:18 | 2380251 watmann
watmann's picture

The Consitution gave the right to print a currency to the Government so as to create a medium of exchnage. The Government was to be the only issuer of a common currency until the rating agencies came along and now they two essentially print a currecny by rating "paper." After all how is a rated piece of paper any differenct than a Federal reseerve Note, better know as fiat money, any different than a rated piece of paper by the agencies?

Fri, 04/27/2012 - 11:37 | 2380312 WAMO556
WAMO556's picture

BULLSHIT! No where does it say in the Consitution "print" the word "coin" is in there. When you get a chance read the document as it is the Law of the Land. Here is what you meant:

To Coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of ...

Fri, 04/27/2012 - 11:42 | 2380323 pods
pods's picture

Article I section 8 gave the Congress the power to coin money, not print currency.  

A rated piece of paper is valued in the FRN, that is why it is different. If a house was valued in x number of MBS's,etc I would agree with you.

Notwithstanding that the FRN itself is unconstitutional, as Congress was not given the power to delegate any of it's enumerated powers.


Fri, 04/27/2012 - 11:18 | 2380252 Jason T
Jason T's picture

Egan, Martin Armstrong, Tesla .. all the Howrad Roarks of the world.  

Fri, 04/27/2012 - 11:25 | 2380278 slaughterer
slaughterer's picture

You forgot to put Tyler in the Howard Roark club.  

Fri, 04/27/2012 - 11:36 | 2380308 Jason T
Jason T's picture

and Tylor..  Ron Paul, Henry Ford .. certainly a club I"d be proud to be a part of.

Fri, 04/27/2012 - 15:01 | 2380852 gmrpeabody
gmrpeabody's picture

These clubs will expect for you to brush up on your spelling. ;-)

Fri, 04/27/2012 - 11:20 | 2380256 Zola
Zola's picture

My favorite quote from yesterday was: 

"“Democracy is a pathetic belief in the collective wisdom of individual ignorance. No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.” H. L .Mencken

Fri, 04/27/2012 - 11:21 | 2380258 Lost Wages
Lost Wages's picture

The SEC has been very active fighting fraud on my wife's favorite soap opera. Victor Newman stands to lose the millions of dollars he made when he sold an all-natural cosmetics company to a member of the Australian mafia.

Fri, 04/27/2012 - 11:22 | 2380265 Village Smithy
Village Smithy's picture

Maybe we should start a legal defense fund for Egan-Jones. Either that or distract the SEC from the case by sending them lots of free porn site links.

Fri, 04/27/2012 - 11:25 | 2380281 earnyermoney
earnyermoney's picture

Anyone contributing to the fund can expect an audit from the IRS. Obama's using government machinery to screw his enemies.

Fri, 04/27/2012 - 11:29 | 2380291 Village Smithy
Village Smithy's picture

The truth is that just opening this website may be a risk.

Fri, 04/27/2012 - 11:34 | 2380305 cougar_w
cougar_w's picture

Only if you include your tax ID in every comment you leave.

But yeah, if you do that then you are totally screwed.

Fri, 04/27/2012 - 11:52 | 2380358 Dark Space
Dark Space's picture

Just responding to your comment prompted this website activated 6 (SIX) trackers to fire off ranging from Google Analytics to something called Halogen.  If you're using Firefox, try installing the Collusion add-on to see the collusion in action while you go to (or any other website)... then install AdBlock and Ghostery to shut the collusion (little "c") down.

Sat, 04/28/2012 - 06:04 | 2381911 awakening
awakening's picture

Awesome addon, I'm currently using NoScript, AdBlock Plus and RequestPolicy and it seems my tweaking of these has given me positive results so far =)

Fri, 04/27/2012 - 11:32 | 2380296 WAMO556
WAMO556's picture


Fri, 04/27/2012 - 11:35 | 2380307 FlyoverCountryS...
FlyoverCountrySchmuck's picture

"The New Normal".

Our grandpaernts called it "Fascism".

Fri, 04/27/2012 - 11:22 | 2380268 aerial view
aerial view's picture

Note to self: please delete the words truth and transparency from all texts as they no longer have any meaning.  

Fri, 04/27/2012 - 11:22 | 2380269 carbonmutant
carbonmutant's picture

WH directed investigations...

Fri, 04/27/2012 - 11:23 | 2380273 earnyermoney
earnyermoney's picture

A supporting story comes from Kim Stassel's opinion piece in the today's WSJ.


Egan Jones is a politically motivated hit straight from Obama. He's the Jackass' version of Tricky Dick Nixon.

Fri, 04/27/2012 - 11:23 | 2380274 chipshot
chipshot's picture


Fri, 04/27/2012 - 11:25 | 2380277 Clayton Bigsby
Clayton Bigsby's picture

Dear SEC - special on tranny porn rite now!!!

Fri, 04/27/2012 - 11:28 | 2380287 EscapeKey
EscapeKey's picture

Moody's would like to remind you that Lehman MBS products remain an attractive AAA-rated investment option for the individual sophisticated investor.

This message was approved by the SEC.

Fri, 04/27/2012 - 11:28 | 2380288 JustObserving
JustObserving's picture

The motto of the SEC - "Either you are with us, or you are with the terrorists." No one told Egan.

Fri, 04/27/2012 - 11:30 | 2380292 alfred b.
alfred b.'s picture


   To think that it took only about 3 decades to go from America the rich and free to Crimerica the corrupt and bankrupt!

   Buy physical gold and silver...and how about that new Shanghai Silver Futures Exch. that just came on-line???



Fri, 04/27/2012 - 11:31 | 2380294 cougar_w
cougar_w's picture

Geitner will have the heads of all the rating agencies in his office this weekend.

He'll show them what's left of Sean Egan.

Then he'll make them an offer they cannot refuse.

What the ... stop laughing. It's not funny.

Fri, 04/27/2012 - 11:41 | 2380322 JustObserving
JustObserving's picture

You forgot the embalmed corpse of Deven Sharma

Fri, 04/27/2012 - 13:22 | 2380595 riphowardkatz
riphowardkatz's picture

Al Armendariz, a regional administrator of the EPA, described his “philosophy of enforcement” as follows:

It was kind of like how the Romans used to conquer little villages in the Mediterranean. They’d go into a little Turkish town somewhere, they’d find the first five guys they saw, and they would crucify them. And then you know that town was really easy to manage for the next few years.

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