Friday, September 26, 2008
The role of the credit rating agencies
Credit rating agencies were one key element of the global financial crisis of 2007 and 2008. Read Elliot Blair Smith on Bloomberg (part 1, part 2), James Ward in the Financial Times, and Mihir S. Sharma in Financial Express.
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Rating agencies have clearly misused the regulatory protection that was granted to them all these years. They have failed to exercise due diligence at the time these CDO's(asset backed securities) were structured by investment banks in hundreds of tranches backed by assets of poor credit quality.
ReplyDeleteIt is not the first time credit rating agencies have missed out on assessments. They are always one step behind the actual situation, as if, their duty is to inform rather than predict failures. Remember Enron. I always believe Stock markets know the health of a Corporate much better than any credit rater.
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