Saturday, September 27, 2008

More On Credit Rating Institutes

I recently told you how credit rating institutes Standard & Poors and Moody's gave Lehman brothers a very high credit rating and actually had that rating still in place by the time Lehman went bankrupt! Only after the bankruptcy was already a fact did they lower Lehman's rating to junk status. Good work, guys.....

As a follow-up to this, I would like to recommend this Bloomberg news story about how the reason credit rating institutes have done such a terrible job may be that companies are pressuring them into giving high credit ratings, and that they fear losing business if they are too honest about the sorry financial state of some companies.

But this lack of integrity will hopefully now backfire as few can take them seriously now that it is made clear that they will provide high ratings regardless of whether companies deserve it or not.

UPDATE: A reader tips in the comment section about this Wall Street Journal article that show how the strong standing of the useless credit rating institutes is the result of government intervention.


Blogger flute said...

The credit raters' ratings were already worthless many years ago. If I remember correctly, Enron had top ratings until just days before its bankruptcy filing.
The fact that nobody cleaned up the credit rating cartel after Enron probably contributed significantly to the current financial mess.

7:31 AM  
Anonymous hajjen said...

More on ratings:

4:16 PM  
Anonymous Anonymous said...

I think Vanguard is defending the status quo because requiring independent analysis puts them at a competetive disadvantage - Vanguard has bet "all-in" on the dogma of index watching, including debt instruments.

-Steve, USA

3:25 PM  

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