Egan-Jones Officially Cuts U.S. Credit Rating

Cutting a credit rating is significantly different that placing it on ‘watch’ or ‘under review’.

Most readers are likely fully aware that Standard and Poor’s and Moody’s have sent out serious warning signals about the potential downgrade of the United States AAA credit rating.

That said, another SEC officially recognized ratings entity has gone one step further and actually lowered Uncle Sam’s standing by one notch.

What firm is so bold and brazen to send this volley across Capitol Hill and down Pennsylvania Avenue?

Egan-Jones.

Unlike the supposed brand name rating agencies which did little to help ordinary investors going into our economic crisis, Egan-Jones’ business model differs markedly from the industry incestuous nature of its counterparts. The resulting lack of inherent conflict allows Egan-Jones to speak freely and boldly. What a novel concept.

What does Egan-Jones have to say about Uncle Sam?

Let’s review a commentary in this morning’s Financial Times which highlights, Debt Fears Lead to U.S. Downgrade,

Egan-Jones has become the first US rating agency to downgrade the country’s sovereign credit rating from triple A to double A plus as it focuses on the rapid rise in outstanding debt over the past five years.

Egan-Jones was officially recognised in 2008 by the Securities and Exchange Commission and, unlike its larger rivals, generates revenue from institutional investors and not from issuers of debt. During the past decade it downgraded US carmakers and structured credit products before similar decisions by the big rating agencies.

The move comes after Moody’s and Standard & Poor’s both placed the US on watch for a downgrade last week. Washington has struggled to reach agreement on raising the country’s $14,300bn debt ceiling and the US Treasury has warned it may default if there is no deal by August 2.

Sean Egan, managing director of Egan-Jones, said that it classified the US rating outlook as “developing” and was looking beyond the current debt ceiling debate in Washington.

“We are watching to see what comes out of Washington, but will make a distinction between delinquency and an outright default,” he said.

Of greater concern for Egan-Jones is the rapid rise in outstanding debt and the prospect of retiring baby boomers severely straining social security and healthcare in the coming decade.

The agency said in its downgrade notice: The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending.

I commend Sean Egan and his colleagues for ‘telling it like it is’ and then doing something about it. I would recommend that the other ‘ne’er do well’ rating agencies truly change their business models so they too can provide an uninhibited version of truth, transparency, and integrity.

In regard to Uncle Sam, the simple fact is the daily diet of high cholesterol stuffing and bulls&*t served up in Washington has got the old man on life support. A ‘sense on cents’ recommendation would have us save the guy but then replace the quacks and dietitians who have abused our friend for far too long.

While I’m at it, why haven’t the major U.S. news outlets more prominently highlighted this story? Hmmmm…

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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