Thursday, June 12, 2008

Rating Agency Death Watch

"When [S&P] lowered its ratings on $34 billion of so-called Alt-A mortgages Wednesday, the firm's largest downgrade of that type of debt and one that some strategists see as a harbinger of other rating actions in the sector, it was hardly a blip on investors screens. Jaded by endless downgrades and revisions to the very methodology and assumptions that the firms use the assess risk, most market participants have simply tuned out the rating firms", WSJ, 31 May 2008.

Now that people ignore the rating agencies, next they will ask that securities not be rated. Why waste the money? See my 13 and 19 December 2007 and 4 March 2008 posts. Also my 16 May 2008 post referring to Marilyn Cohen of Forbes.

4 comments:

Edgar Alpo said...

If I am selling bonds, and the ratings I pay for do not affect the price paid by, or the confidence instilled in, the buyer, why would I continue to pay for said ratings?

Edgar Alpo said...

P.S.: That goes for the monolines as well.

Independent Accountant said...

BS:
Good question. Eventually the market will answer it as follows: don't. The the rating agencies and monoline insurers will die.

Edgar Alpo said...

Yep, the buyers know now that they are on their own. You puts down your money and you takes your chances. Insurance is worthless, ratings are useless. You must do your own research and draw your own conclusions. The wild west of the financial world is about to get ugly.