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Chapter 10. Beyond Their Means: Balance ... > Shot by Both Sides: The Credit Ratin...

Shot by Both Sides: The Credit Rating Agencies

The three main international credit rating agencies, Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch Ratings, were castigated for their failure to detect Enron’s deteriorating financial position or to reduce the ratings they gave it until only days before it sank into bankruptcy. Their top officials were hauled before Congressional committees to explain themselves amid suggestions that they were either asleep at the wheel or too cozy with their corporate clients who foot the bill for the ratings. As a result of the criticism, the SEC was expected to propose measures to regulate the three agencies in 2003.

The agencies fired back that Enron had kept them in the dark and they were victims of fraud as much as anyone. You might think their failure to spot the Enron problem sooner means that the agencies have become less relevant. But, nothing can be further from the truth. Indeed, they have been criticized by some investors for becoming trigger-happy with downgrades in the wake of the pummeling they received over Enron.


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