ratings agencies

Even a ratings agency can see that a $400 million loss, some impending arrests and Mike Corbat’s heartache are not good for business. Read more »

There are apparently companies without the resources to buy triple-A credit ratings from the Big Three. A little fourth has arrived to help, but plans to studiously avoid stepping on larger incompetent toes. Read more »

Fact: The Big Three perhaps maybe haven’t done the best job rating bonds, sovereign or otherwise.

Fact: Powerful governmental bodies aren’t especially happy with some of those ratings, even if they were indisputably right.

Conclusion: Kick’em while they are down. Read more »

The judge hearing the Justice Department’s CDO-rating lawsuit against S&P refused to dismiss it yesterday, rejecting S&P’s much-mocked theory that its pre-crisis claims of independence and objectivity and, like, plausible ratings were just “puffery” that no one should have taken seriously. Here is the story, and here is his opinion, and here is a rhetorical question:1

At the hearing on this matter, Defendants repeatedly asserted that no reasonable investor would have relied on S&P’s claims of independence and objectivity. Regarding the question of materiality, S&P argued that, since the issuer banks had access to the same information and models that S&P analysts did, they could not have been fooled by faulty credit ratings. This begs the question: if no investor believed in S&P’s objectivity, and every bank had access to the same information and models as S&P, is S&P asserting that, as a matter of law, the company’s credit ratings service added absolutely zero material value as a predictor of creditworthiness?

Well so I mean do you want an answer? How much value do you think they added?

The S&P case is a pretty weird beast because it’s brought under the FIRREA, a law designed to protect federally insured banks, and so the government has to assert that: Read more »

  • 21 Jun 2013 at 5:01 PM

Congressmen Have Some Advice For Ratings Agencies

The ideal financial regulatory regime would go like this:

  • Regulators would tell market participants not to screw up.
  • Market participants would not screw up.
  • Peace and harmony would reign throughout the land.

This is ideal not only because of the peace and harmony but also because it omits any work by the regulators. Why choose whether to set capital ratios based on risk-weighted or total assets when you can just tell banks not to lose any money? If they never lose money then it doesn’t matter how thinly capitalized they are.

These guys know what I’m talking about: Read more »

Would you have predicted this?

This paper investigates the impact of credit rating changes on the sovereign spreads in the European Union and investigates the macro and financial factors that account for the time varying effects of a given credit rating change. We find that changes of ratings are informative, economically important and highly statistically significant in panel models even after controlling for a host of domestic and global fundamental factors and investigating various functional forms, time and country groupings and dynamic structures. Dynamic panel model estimates indicate that a credit rating upgrade decreases CDS spreads by about 45 basis points, on average, for EU countries.

I would not have! Perhaps I am biased from living in a country where credit ratings are a contrary indicator of sovereign interest rates, and where municipal defaults inevitably lead to helpful comments from ratings agencies like “If the payment doesn’t get made, we would downgrade the rating.” Apparently, though, sovereign ratings matter, at least in Europe and at least at some points on the ratings scale.1 Read more »

You don’t have to agree with everything the SEC does to respect the way they do it: passive-aggressively. Felix Salmon this morning discussed “the problematic JOBS Act, where the SEC has done a good job of stalling on various silly yet Congressionally-mandated reforms,” and the SEC’s similar strategy of “being sensible and dragging its feet” on Congressional dedecimalization proposals. If you’re a regulatory agency tasked by Congress with implementing a new law, and you don’t feel like it, the best approach is always to commission a study.

Is that what’s going on with ratings agency reform proposals?

The 2010 Dodd-Frank financial-overhaul law requires the SEC to create a board that would assign a rating firm to evaluate structured-finance deals or come up with another option to eliminate the conflicts that could arise when debt issuers pay rating firms to rate their bonds. … Sen. Al Franken (D., Minn.) proposed the legislation, which is known as the Franken Amendment.

… Mr. Franken defended his proposal Tuesday to attendees at the round table, including SEC commissioners and SEC Chairman Mary Jo White. He also called on the agency to make changes to the credit-rating industry.

“My plea today is that you take action,” Mr. Franken said. “Millions of Americans lost their jobs because the credit rating agencies didn’t do their jobs,” he said.1

The agency published a report in December – six months late – that was widely expected to announce regulatory changes. Instead, the report proposed more discussion and the convening of a round table.

So hahahaha SEC you suck but the problem seems genuinely hard doesn’t it? Read more »