5 ms·

To me - its quite astonishing that the Ratings Agencies still hold so much sway , given that they have been thoroughly discredited in the last 2 years. I wonde

by ivenkys 16y ago

To me - its quite astonishing that the Ratings Agencies still hold so much sway , given that they have been thoroughly discredited in the last 2 years. I wonder, what it would take to have another ratings agency ? Is this simply a case of Market Incumbency ?

gaius 16y ago
Exactly the same as it would take to create a new news organization, I expect. I mean, we're all reading this as if the BBC is a "credit rating agency" of news, free from any vested interest or political bias, but of course that's not true: the BBC has a history of attacking financial institutions. It didn't create the problems in Northern Rock's business of course, but it is largely responsible for there being a run on that bank and it collapsing (the depositors were never actually in any risk due to government guarantees to all savers).
- thalur 16y ago
  I find it somewhat ironic that Robert Peston is criticising the ratings agencies for playing a very similar role to the one he played in the Northern Rock fiasco.
acg 16y ago
Greek bonds are about to mature and there is no money. Without some deal, which wasn't forthcoming because of the fallout in German elections, then Greece would have to default. If this is not reported in the rating then the Agency has no credibility.
- rue 16y ago
  Agreed. It is, however, quite possible for a rating agency to influence the value of various things inadvertently or on purpose.
  - va_coder 16y ago
    If reason and sound research leads them to a conclusion that does influence I say all the better. It was the concern you described that led them to do nothing from 2004-2007.
  - acg 16y ago
    I find it difficult to believe that these agencies operate independently from politics. Borrowing of recent years would seem to confirm some of this. Agencies seem to form part of the political landscape. In this case the agency is used as a means to apply political pressure: both on Germany to form an unpopular deal and Greece to accept terms. To me this looks to be part of political pressure applied by Washington on the IMF, Greece and the Eurozone. I'm sure the politicians want to act but any measure is going to be unpopular with one electorate or another. It's a political play for the consumption of the European electorate.
jedc 16y ago
Reading The Big Short by Michael Lewis was illuminating. Essentially, the ratings agencies have done pretty well over the years on corporate and government bonds. There is a lot of quality historical data, and a relatively small number of institutions involved. Their models broke down when it came to mortgages and how thousands (millions?) of loans hang together. But that doesn't mean their models of corporate/government debt don't still hold up.
- rubinelli 16y ago
  I wouldn't be surprised to discover their models of corporate and government debt contain the same systemic blindness to domino effects. They haven't been fully tested yet, because there's always public money to save companies that are Too Big To Fail.
anamax 16y ago
> I wonder, what it would take to have another ratings agency ? The hard part is getting recognized, especially by govts. There's a problem in there somewhere.... > Is this simply a case of Market Incumbency ? In much of the world, anyone can publish an opinion on any bond and lots of folks do, even if few of them call themselves "rating agencies".
lanstein 16y ago
I asked this same question of someone I know at TransUnion, and basically, the answer is yes. Although, considering companies have to pay a few cents to report the data, maybe there's a market for a company that allows free reporting and can somehow stay in business for long enough to provide relevant, recent (7-10 years) data. You wouldn't be able to provide the accounts in good standing that remain on the reports indefinitely, but it might be good enough. Not that it's terrible relevant, but he told me TU has data on people going back to the 1920s. edit: didn't read the article, but the same concept holds true for business CRAs.

by ivenkys 16y ago

gaius 16y ago

Exactly the same as it would take to create a new news organization, I expect. I mean, we're all reading this as if the BBC is a "credit rating agency" of news, free from any vested interest or political bias, but of course that's not true: the BBC has a history of attacking financial institutions. It didn't create the problems in Northern Rock's business of course, but it is largely responsible for there being a run on that bank and it collapsing (the depositors were never actually in any risk due to government guarantees to all savers).

thalur 16y ago
I find it somewhat ironic that Robert Peston is criticising the ratings agencies for playing a very similar role to the one he played in the Northern Rock fiasco.

acg 16y ago

Greek bonds are about to mature and there is no money. Without some deal, which wasn't forthcoming because of the fallout in German elections, then Greece would have to default. If this is not reported in the rating then the Agency has no credibility.

rue 16y ago
Agreed. It is, however, quite possible for a rating agency to influence the value of various things inadvertently or on purpose.
- va_coder 16y ago
  If reason and sound research leads them to a conclusion that does influence I say all the better. It was the concern you described that led them to do nothing from 2004-2007.
- acg 16y ago
  I find it difficult to believe that these agencies operate independently from politics. Borrowing of recent years would seem to confirm some of this. Agencies seem to form part of the political landscape. In this case the agency is used as a means to apply political pressure: both on Germany to form an unpopular deal and Greece to accept terms. To me this looks to be part of political pressure applied by Washington on the IMF, Greece and the Eurozone. I'm sure the politicians want to act but any measure is going to be unpopular with one electorate or another. It's a political play for the consumption of the European electorate.

jedc 16y ago

Reading The Big Short by Michael Lewis was illuminating. Essentially, the ratings agencies have done pretty well over the years on corporate and government bonds. There is a lot of quality historical data, and a relatively small number of institutions involved. Their models broke down when it came to mortgages and how thousands (millions?) of loans hang together. But that doesn't mean their models of corporate/government debt don't still hold up.

rubinelli 16y ago
I wouldn't be surprised to discover their models of corporate and government debt contain the same systemic blindness to domino effects. They haven't been fully tested yet, because there's always public money to save companies that are Too Big To Fail.

anamax 16y ago

> I wonder, what it would take to have another ratings agency ? The hard part is getting recognized, especially by govts. There's a problem in there somewhere.... > Is this simply a case of Market Incumbency ? In much of the world, anyone can publish an opinion on any bond and lots of folks do, even if few of them call themselves "rating agencies".

lanstein 16y ago

I asked this same question of someone I know at TransUnion, and basically, the answer is yes. Although, considering companies have to pay a few cents to report the data, maybe there's a market for a company that allows free reporting and can somehow stay in business for long enough to provide relevant, recent (7-10 years) data. You wouldn't be able to provide the accounts in good standing that remain on the reports indefinitely, but it might be good enough. Not that it's terrible relevant, but he told me TU has data on people going back to the 1920s. edit: didn't read the article, but the same concept holds true for business CRAs.