Muni analysts challenge ratings overhaul

By Michael Connor

MIAMI BEACH, Fla. (Reuters) - Proposals for Wall Street ratings agencies to synchronize ratings for trillions of dollars of U.S. government debt with corporate ratings on Wednesday drew derision from municipal bond analysts.

Proponents of aligning ratings systems, including California's treasurer and finance giant Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz), argue that the change would stir global demand for municipal bonds and save taxpayers millions of dollars in interest payments.

Ratings from agencies such as Moody's Investors Service and Standard & Poor's are relied on by investors to gauge default and other risks and are key in determining interest rates paid on the $2.6 trillion of outstanding debt from cities, schools and other tax-free borrowers.

"You guys ever see the movie, 'Boiler Room'?," an audience member asked a panel of market experts at a meeting of municipal debt analysts, referring to a 2000 dramatic film about dishonest securities brokers bilking investors.

"You get two scales out there; you're going to hurt retail investors," the audience member said.

No one on the panel, including an official of the U.S. Securities and Exchange Commission, responded to the comments but many in the audience of hundreds at the annual meeting of the National Federation of Municipal Analysts applauded.

Other audience members speaking to the panel said the ratings proposals would aggravate confusion and anxiety in a market already dogged by wobbly bond insurers, complicated debt instruments that many say were far riskier than ratings agencies understood, and a defunct auction-rate securities segment.

"The last thing we need is to have lower standards," said another audience member. His comments, too, were applauded by others in the audience.