Connecticut Sues Rating Agencies

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Connecticut's Attorney General is suing the three major rating agencies for giving lower ratings to bonds issued by municipalities. Moody's, Standard & Poor's and Fitch Ratings are accused of costing taxpayers "millions of dollars" by AG Richard Blumenthal.
The idea behind Blumenthal's complaint is that the market has been mispricing munis for decades based on the assignments of the rating agencies. He asks us to believe that bond investors are unaware of very public facts--including the use of different ratings scales and the fact that the ten year cumulative default rate of muni bonds rated Baa is less than that of AAA rated corporate bonds. It requires, in short, that we subscribe to the idea that the markets have been radically inefficient in bond pricing.

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