This relates to Jon's earlier post about the Eurozone credit rating being downgraded by Standard & Poor's. I think that it is absurd that people put so much behind these ratings. These are for-profit companies made up of no more than a few hundred employees making decisions that effect billions of people and the world economy. How can we be sure that these rating are put out in good faith? Why is it that some people including international banks and pension funds put so much faith in these ratings?
I agree with Nick's assessment. Credit rating agencies are cartel-esce in the manner in which they threaten and bully governments. They make massive profits only because other viable options are limited. They have inexplicably become the standard. Fortunately, policymakers are attempting to develop alternative methods. The 2010 Dodd-Frank financial oversight law examines the inefficiencies associated with relying on credit rating agencies and explores other options.
ReplyDeleteLook back to 2008 when dodgy mortgage securities were given the highest possible ratings. Not only are they inefficient, credit rating agencies can be prone to inaccurate assessments of securities.
I also agree! Why should these ratings hold so much weight? Should they really make such a big difference and cause a negative impact over the population of the Eurozone? I do not understand how the S&P rating holds true for such powerful economies in Europe.
ReplyDeleteAlso, I read on a blog that that in terms of the rating that matters - it's the short-term rating, not the long-term. So in the case of the US downgrade, it was only the long-term rating that was actually downgraded, this prevents money market funds from being affected.
I read an article that talked about how these ratings have caused the strength of the Euro to decline because S&P put 15 out of these 17 countries on credit watch.
ReplyDeleteI think these ratings are crap. I agree with both ryan and colleen in that these credit rating agencies are able to bully and threaten governments and that they shouldnt hold so much weight. Great points guys/girls
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