ratings agencies

You can do the work yourself, what with all of the new information banks will have to disclose about all of the garbage they’re hiding in them. Or you can trust that the ratings agencies will live up to the spirit of the new rule directing them to do what they say they do, rather than what’s good for them. Read more »

We all know that no one listens to what credit ratings agencies say, and that if you were buying up all of that RMBS eight years ago marveling at what a great deal you were getting on triple-A rated stuff, you had it coming. But wouldn’t it be neat if you could put the tiniest bit of stock into a credit rating? Wouldn’t it be great if the folks at Fitch and Moody’s and S&P actually had to do the things they get paid to do?

The SEC thinks so, too. Although, this being Mary Jo White’s SEC, it wouldn’t want to be accused of going too far, or far enough, for that matter. Read more »

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 »

  • 01 Aug 2013 at 11:44 AM

Bond Rating Agency Decided To Try To Rate Some Bonds

What does a AA credit rating mean? The intuitive answer is something like “it means that the rating agency rating the thing thinks it has a probability of default no higher than X% and no lower than Y%,” where X and Y are the boundaries of AA- and AA+ respectively, and sure, that’s about right. But there’s an important loophole there which is that each rating agency can set X and Y to be whatever they want. I can make AA a ~1% probability of default, and you can make it ~20%, and no one can tell us who’s right and who’s wrong, because it’s just some letters, y’know? There’s no a priori relationship between those letters and any particular probability of default.

That seems sort of odd, so Congress in the Dodd-Frank Act directed the SEC to look into standardizing the relationship, and the SEC looked into it, and in 2012 they came back to Congress and said no dice. Because basically everyone – ratings agencies but also issuers of and investors in bonds – preferred the current non-standardized system where ratings agencies just rate bonds however they want.1 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 »