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The background behind the rating agencies is that there are thousands or even millions of investment portfolios out there, with many of them fulfilling very imp
by bayesianhorse 12y ago
The background behind the rating agencies is that there are thousands or even millions of investment portfolios out there, with many of them fulfilling very important risk management functions. Pension funds, health insurance, all other forms of insurance, Banks, even many big companies who aren't technically in the finance industry.
Most of them need some form of "low yield safe investment". But it is hard to define what is safe. That's where rating agencies come in. An insurance can promise to abide by such an agency, and that removes a lot of oportunity for bad judgement on the part of individual fund managers.
You may argue whether these agencies are doing a good job at this, but most proposals to get to a better system involve some way of increasing the power of governments or individual fund managers.
- pessimizer 12y agoI didn't realize how common that was outside of government. Thanks.
- crdoconnor 12y ago>You may argue whether these agencies are doing a good job at this, but most proposals to get to a better system involve some way of increasing the power of governments or individual fund managers. Ratings agencies are unaccountable private entities. Every time they are challenged they invoke the 1st amendment - i.e. their right to lie. Yet the law enshrines their privilege through regulation of investments (which are forced to rely upon their opinions). There's absolutely no way the government would be any worse. They are at least accountable to their citizens via voting. Ratings agencies are accountable to nobody. They've also used their weight to bully, too. S&P downgraded the US even though it made absolutely no sense because there were moves made to prosecute them for mis-rating CDOs before the credit crisis.