Wednesday, 18 May 2011

Rating Agencies Opinions For Hire

"Inside Job" explains how unreliable the rating agencies are, especially Standard & Poor's & Moody's. They, among others, gave Triple A ratings to companies that were unworthy - while being paid by those companies. They not only made millions through scribbling suspect ratings, but helped cripple the global economy & fuel the recession.

Moody's confirmed the Irish State's AAA rating shortly before the cover came off and it was revealed to be a basket case. Why Was Lehman Brothers Rated 'A'? In 2008 though, Standard & Poor's justified its own financial crash blindness in its paper Why Was Lehman Brothers Rated A? Their answer was to blame the market and the public. Their ratings, claims Standard & Poor's, are far too sophisticated to merely reflect the whims of prevailing market sentiment.

An insightful editorial from Ponte Al Dia concisely expresses the problem: "In 1974 the impartial judge and ‘fundamental credit analysis’ guru, began “charging issuers for corporate ratings”, albeit a common and legal practice, but the boundaries between the objective evaluator and its clients began to blur, as attested by the case of the Enron debacle and its complicit auditor Arthur Andersen."

Now, they are warning our Government about our debt yet the US Government enjoys a AAA rating and increasingly the US dollar is no longer the currency of choice. The US dollar is a default currency – there are no other options. The US debt's 'AAA' rating is the highest issued by Standard & Poor's. However, that the US debt rating has been put on negative watch is no surprise. Statistically, the US economy is almost at par with basket case Third World economies of yesteryear, except that the US can issue debt which investors must buy by default. (No other debt market is as deep as the US bond market.) To my knowledge governments don't pay to be rated, it may be useful to find out who is paying - in which case we'll then be able to see the organ grinder and not the monkey!


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