What a Surprise: Credit Rating Agencies Hurt America

This only fills in the anecdote blanks for anyone paying attention, but there is a looooong new two-part Bloomberg series out castigating the credit rating agencies. It's worth reading, however, and you can think of it as a complement to my own piece ("The Blame Game (II): Credit Rating Agencies are Rug Pee-ers") from a week ago.

My only question: I have been criticizing credit ratings agencies for years, to no avail. Where was Bloomberg with this sort of journalistic detail five years ago when a piece like this with Bloomberg-ian distribution could have really mattered? As Mike Milken says, you get full points for telling me before it happened, not afterward.

Anyway, here is a numbing quote from an S&P whistle-blower quoted in the piece:

We knew the delinquencies were bad. The fact was, if we could have hired a supreme being to tell us exactly what the loss was on a loan, they wouldn't have hired him because the Street wasn't going to pay us extra money to know that.

How lovely. More here.

Comments

[Roger Knights:]

Here's an idea: Set up a ratings agency to rate the raters! IOW, S&P, Fitch, etc. will be retroactively rated on how well or poorly they foretold fiscal erosion and bankruptcies. That would provide a strong incentive for the raters to behave responsibly, because if they got a low score, they'd lose credibility and, ultimately, business. This should be part of this bailout bill--or the next one. I.e., maybe it should be done be a division of the SEC.

In the meantime, maybe some iconoclast could create a table showing the most recent 20 (say) collapses as rows, and the advance warning each rating agency gave (as columns), with the totals in each column added up and divided by 20 for a rough indication of how quick each rater is to say the emperor's undressed.

2008 Sep 25 11:04 AM

[Alex Filonov:]

Rating agencies earn money by charging debt issuers for the work of debt rating. I just wonder why we don't hire wolves to herd sheep...

2008 Sep 25 05:24 PM

[BerkeleyBob:]

The role of the credit rating agencies has not been much discussed. It is clear that the collateralized debt marketed to foreign central banks and institutional investors (pension funds) was not of the prime quality represented. One undiscussed consequence is the damage the packaged and toxic loan packages have done to US credibility in the world markets... Of course, the agencies involved may have simply exercised poor judgement and not abetted a fraud, but plenty of harm results either way.

2008 Sep 26 02:49 PM