The damage the guys at these ratings agencies are doing

NIMAN

It has been interesting to see how much the decision by the likes of Standard & Poors to downgrade a country's rating by can affect the entire world markets.

I was wondering just how many people actually are involved in this decision. Is it made among a handful of top people at the company? Is it many hundreds of analysts?

Anyway, they seem to have an awful lot of power to wield, and considering that most businesses are open to corruption, why have the top guys at these companies not been bought off to say things are ok and no need to create a panic?

Just an idea.;)

FISMA

I would argue that in the past they have been too lenient.

These are the same people that gave AAA rating to mortgage backed securities.

If that wasn't bad enough, where were they on Fnm, Fre, Bear Stearns, AIG, Lehman and all of the rest?

Let's face it, they are right to downgrade.

Anyone with a credit card would receive a similarly lower credit score if they behaved in a similar fashion.

Heck, in the states, if people even look at your credit score for more than a month, it lowers.

nesf

They were correct to downgrade the US, policymakers there made no effort to deal with the real long term problems facing their economy (i.e. the mismatch between their taxation regime and their major welfare spending programs).

BUNK1982

NIMAN wrote: »

It has been interesting to see how much the decision by the likes of Standard & Poors to downgrade a country's rating by can affect the entire world markets.

I was wondering just how many people actually are involved in this decision. Is it made among a handful of top people at the company? Is it many hundreds of analysts?

Anyway, they seem to have an awful lot of power to wield, and considering that most businesses are open to corruption, why have the top guys at these companies not been bought off to say things are ok and no need to create a panic?

Just an idea.;)

I could be wrong but I think they are required to publish a report when they alter a credit rating??

It is a bizarre situation though - given the role they played in the crash and the way they get paid. I wonder what would happen if they were removed from the equation altogether?? IE if the banks were required to do their own research...

SBWife

I interviewed with Moody's many moons ago in NY. All I remember was the salary was significantly less than what banks and hedge funds were paying and the offices were decidedly shabby. At the time they (and the other rating agencies) had a reputation for hiring analysts that couldn't get work elsewhere.

later12

BUNK1982 wrote: »

I could be wrong but I think they are required to publish a report when they alter a credit rating??

An explanation has to be given for the rating. Also, disclosure of how the rating was arrived at, with other additional information, has to be made available to other ratings agencies. These are relatively new developments, and in terms of transparency are welcome.

Other welcome changes that have arisen include the fact that regulators are now usually free to delete references to CRAs from regulatory rules. Under the Dodd-Frank act in the USA, regulators were encouraged to find alternative ways of determining investment/ product quality.

I think a number of things can be done to reform CRAs, including encouraging the dissemination of more frequently and gradually updated ratings - which would be less likely to cause a bottleneck to buy or sell a product.

There is also an argument that CRAs should be structured like Egan-Jones, which charges investors and not sellers for a rating. While this would do a lot to remove the conflict of interest issue, there is evidence that investors are not enthusiastic about this proposal.

Another thing which could help reform CRAs is to establish more of them. Open up the NRSRO title (a sign that an agency is an officially recognised agency) to more candidates. And/ or perhaps set ratings and regulatory standards based on the cumulative opinions of the NRSRO agencies.

Whatever happens, CRAs are here to stay. We do need them, but not necessarily in their current format. With the US downgrade past us, and perhaps a British downgrade on the horizon, I think that realisation has now been hammered home to those in politics as well, and we should see some movement on further CRA reform this year.