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Hedged.biz has downgraded Fitch, Moody’s and Standard and Poors from AAA directly to junk.
For downgrading (upgrading) issuers only after price discovery has occurred and being reactive rather than proactive. For downgrading (upgrading) issuers only after bad (good) stuff has happened and been priced in. Downgrading BP over a month after their rig in the Gulf blew up is not very useful.
For operating a conflicted model whereby the issuer pays the credit ratings agency to provide a rating.
For the audacity to rate instruments which they did not fully understand.
For being part of a feedback mechanism of automatic leverage and deleverage.
One Response
Tav
15|Jun|2010 1to play devil’s advocate for a moment…
BP and the spill – no one could have predicted how long or how severe the spill would be. The situation has been evolving. Presumably they need to be sure that there has been a clear and lasting negative impact to BP’s balance sheet before a ratings downgrade, as opposed to a stock analyst downgrade.
I agree on the conflicted agency problem where rating agencies are paid by the parties that they rate. see Frank Partnoy for an interesting take on this.
A thought for you, what about the audacity of the entire financial system, basing everything on ratings from a agencies that did not undertsand the products they were rating and worked in a duopoly / quasi oligopoly structure fraught with disincentive and agency issues…
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