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November 16, 2011

Credit Rating Fees Rise Faster Than Inflation as Governments Downgraded

West Haven,Connecticut, which has closed four school buildings over the past two years and fired 14 teachers to help cut its budget deficit, is about to pay Moody’s Investors Service almost double what it cost six years ago for a credit rating.

Joseph Mancini, finance director for the city of 55,000 near Yale University, says he has no choice other than to meet the demands of Moody’s after the municipality’s bonds were downgraded to Baa1 in January, three levels above junk, from A2.

“The market’s going to punish us for the rating we’re at,” Mancini said in a telephone interview. “If we didn’t get it rated, we would be punished even more.”

Four years after faulty ratings helped trigger the worst financial crisis since the Great Depression, Moody’s and Standard & Poor’s are as dominant as ever, boosting fees at a faster rate than inflation as new competition promised by lawmakers failed to materialize.

Read the full story here.

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