Cutting a credit rating is significantly different that placing it on watch or under review.
Most readers are likely fully aware that Standard and Poors and Moodys 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 Sams standing by one notch.
What firm is so bold and brazen to send this volley across Capitol Hill and down Pennsylvania Avenue?
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?
Lets review a commentary in this mornings Financial Times which highlights, Debt Fears Lead to U.S. Downgrade,
Egan-Jones has become the first US rating agency to downgrade the countrys 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 Moodys and Standard & Poors both placed the US on watch for a downgrade last week. Washington has struggled to reach agreement on raising the countrys $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 neer 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 Im at it, why havent the major U.S. news outlets more prominently highlighted this story? Hmmmm