MORE RATING AGENCY NONSENSE

The ratings agencies played a key role in the Crunch and deserve to pay some penalty. And perhaps they should be elminated completely because their incompetence is a threat to the economy.

Municipal Upgrades by S&P Show Inappropriate Scale (Update1)
By Darrell Preston and Christine Richard

Dec. 4 (Bloomberg) -- Between 2005 and 2008, Pigeon, Michigan’s unreserved general fund balance fell 29 percent and debt per capita rose 18 percent. That didn’t stop Standard & Poor’s from increasing the village’s credit rating by three levels in September.

The community of 1,100 near Lake Huron in northeastern Michigan’s “Thumb,” touted as the home of the state’s largest grain elevator, is one of more than 600 municipal borrowers New York-based S&P has raised in 2008 as the economy became mired in a recession. Almost 15 percent of some 250 increases in October and November were for borrowers in California and Michigan, two of the four states with the most job losses in October.

Moody’s and Fitch have said they’ll implement widespread upgrades to municipal bonds once credit markets stabilize so the ratings reflect the same chance of default whether they’re applied to corporate or municipal obligations. S&P is alone in insisting its ratings are comparable and no across the board adjustments are needed.