4 ms·

> What actual value do they provide? (esp. in light of the housing crisis proving they weren't providing any value at all?) A significant amount of retail and

> What actual value do they provide? (esp. in light of the housing crisis proving they weren't providing any value at all?) A significant amount of retail and institutional investment still use these ratings as a guiding indicator. Not everyone does due diligence. If you have ever worked for a corporation, you know that they love cutting corners. And one corner they'd happily cut is time on due diligence - even if it causes a crash later on. It is not a problem for this quarter.

kortilla 1y ago
Who though? Institutional would never defer to just these agencies
- mint2 1y ago
  There’s actually a ton of places that rely on those ratings - like insurance companies need at least a certain rating in order to write in certain states.
awongh 1y ago
Another way to ask the question is how wrong would they have to get it before people stopped relying on them? The interesting aspect to me is that they are not a government department- they make these ratings as part of a profitable business model. It's not like they keep chugging along no matter what. It just seemed like that during the housing crisis the businesses seen to be putting their "ok" stamp on everything would have been the first to go down.
akoboldfrying 1y ago
>Not everyone does due diligence. I don't think it makes sense for every single person or company considering investing in Company XYZ to do their own, separate due diligence on XYZ. The information they each would uncover is the same. It's a lot more efficient to pay a ratings agency to rate XYZ once. The tricky part is getting the incentives right so that the ratings the ratings agency produces are accurate. (There already is a reputational risk incentive pushing towards doing this the right way, but as we saw in 2008, there are other incentives pushing the other way, and they might often be stronger.)

kortilla 1y ago

Who though? Institutional would never defer to just these agencies

mint2 1y ago
There’s actually a ton of places that rely on those ratings - like insurance companies need at least a certain rating in order to write in certain states.

awongh 1y ago

Another way to ask the question is how wrong would they have to get it before people stopped relying on them? The interesting aspect to me is that they are not a government department- they make these ratings as part of a profitable business model. It's not like they keep chugging along no matter what. It just seemed like that during the housing crisis the businesses seen to be putting their "ok" stamp on everything would have been the first to go down.

akoboldfrying 1y ago

>Not everyone does due diligence. I don't think it makes sense for every single person or company considering investing in Company XYZ to do their own, separate due diligence on XYZ. The information they each would uncover is the same. It's a lot more efficient to pay a ratings agency to rate XYZ once. The tricky part is getting the incentives right so that the ratings the ratings agency produces are accurate. (There already is a reputational risk incentive pushing towards doing this the right way, but as we saw in 2008, there are other incentives pushing the other way, and they might often be stronger.)