Comments on: Why do markets pay attention to rating agencies?

By: Kusaan

Kusaan — Sat, 01 May 2010 11:24:12 +0000

I agree that rating agencies could not give right prediction of the incidents. But i also believe that still they are important. A rating instrument could easily be marketed in London and well as India. So these rating make instruments global. Beside it they also provide a standard for investment purpose. So I think that we should not eliminate rating agency.

By: alchan

alchan — Fri, 30 Apr 2010 01:02:31 +0000

It is hard to believe the financial reform being debated in the house and the senate left out these rating agencies, shouldn’t they be subject of any wrong doing investigation just like Goldman? It is time for the foreign countries to review if these rating agencies shall be allowed to conduct their activities worldwide spreading the virus!

By: Ghandiolfini

Ghandiolfini — Thu, 29 Apr 2010 21:03:26 +0000

I hope we all understand what Abacus really was ? As far as I remember from the infographic, ‘it’ had a BBB rating, does it matter or is it relevant ?

By: m11213

m11213 — Thu, 29 Apr 2010 18:15:37 +0000

The ratings agencies have always erred in the direction of making things seem better than there actually were. This is understandable, as they were paid to do so. Now that they are lowering ratings, this is more believable, especially when many financial analysts and economists have also stated that the problems are much bigger than anyone is willing to admit. Given the many reasons for many players (including governments) to represent things as better than they are, a lowered rating is more believable than the nonsense in the past.

By: Ghandiolfini

Ghandiolfini — Thu, 29 Apr 2010 16:07:47 +0000

Fair enough Pantagruel, except removing is not the same as outlawing, that’s what airbags are there for. Ratings are more like contraceptives, which are used after expiry, too late or not used at all when people are drunk, like drunk with greed. Removing it could just make people think more clearly, as to outlawing it, now you are talking.

As for complementing it, I think it is already too complicated, and seeing that everybody avoids the ownership and antitrust issue, we might as well all have a haircut.

By: Pantagruel

Pantagruel — Thu, 29 Apr 2010 08:02:15 +0000

Curiously enbouygh the removal of ratings from prudential regulatory measures has been welcomed by rating agencies, which have opposed the “hardwiring” of ratings in regulation for more than a decade.
In the case the use of ratings in rules was not to be reduced, rating agencies demanded that also other measures and benchmarks should be used to complement ratings.
That all said, institutional investors and pension funds have argued that removing ratings from securities regulation would also remove important investor protections.
Vanguard Group, one of the main US mutual funds, has commented thus: “Ratings – even if occasionally imperfect – protect investors by establish-ing a uniform, minumum credit quality for all money market funds. Removing that investor protection is akin to outlawing seat belts with the hope that drivers will be less likely to be injured if a defecting belt fails in a crash”.
Also, the Securities Industry and Financial Markets Association has acknowledged that while the use of credit ratings in regulation may foster excessive reliance on ratings, it also provides “an appropriate minimum” and “an important data point that should be part of a larger analysis”.