Comments on: Pay no attention to Moody’s Berkshire downgrade

By: Ian Kemmish

Ian Kemmish — Thu, 09 Apr 2009 12:57:49 +0000

“One of the biggest weaknesses in financial markets is the way in which investors happily downplay the biggest of conflicts” — considering that you’re being paid money to churn out opinions that we can all get for free at any bar or bus stop, you are surely under at least some obligation to adduce evidence to support such claims as this?

By: Ilya

Ilya — Thu, 09 Apr 2009 09:56:22 +0000

Duncan, all you would have is an even more opaque securities market: the job of the rating agencies is to ptovide independent, third-party opinions on credit. Sometimes they do it well, sometimes as in the sub-prime mortgage and derivative debt example not so well but with them gone you would lose the one remaining way of overcoming informational assymetries. The challenge is not to eliminate rating agencies but to reduce their error rate.

Felix is only half-right. We should not downplay conflicts, true, but we also should not presume that someone who has a conflict in theory necessarily has one in practice. In this example, for instance, is there any evidence whatsoever that Moody’s analysts were influenced by Berkshire? Do we have the minutes of their committees to back up that claim?

By: Vikram

Vikram — Thu, 09 Apr 2009 08:46:56 +0000

I seriously doubt the quality of these agencies as to what were they doing giving good credit ratings to companies having big exposures to sub-prime markets … it all seems so wrong.

By: Duncan

Duncan — Thu, 09 Apr 2009 08:03:39 +0000

Just imagine a securities world free of credit rating agencies. What a better world it would be.

By: otto

otto — Thu, 09 Apr 2009 07:08:07 +0000

The Moody’s tactic of being last into the playground also pays dividends.

For example, S&P and Fitch must now feel pretty stupid about handing out Peru an investment grade rating, while Moody’s sit pretty below the line and say “aaaah, boys, you shudda waited a while”.