bondboy

Blaming the Ratings Agencies: Too Convenient

Now retired, I spent the better part of 30 years in the bond business, largely splitting my time between first one of the agencies and then a major sell-side firm. Yours is about the sanest, most thoughtful comment I've read on this subject. Nonetheless, as to the conflict of interest argument, I'll take a modest exception; if the argument were valid, it should have shown up in corporate and muni ratings at some point in the past 35 years - it simply hasn't, at least not in any statistically significant fashion. I think the agencies' aggregate failure in the mortgage-related/CDO area is quite simply a failure to anticipate the full potential of the real estate crash; the modelers had nothing in US history - not even the Depression - on which to hang their hats. That's not an acceptable excuse for blowing the analysis - which they did by being strictly backward looking, but the conspiracy theory stuff strikes me as misplaced.