## Tuesday, November 11, 2008

### Interesting internships

by P. V. Shathish.

SEBI

Planning Commission

Department of Economic Affairs, Ministry of Finance: The interested and eligible students to send their applications, along with their CVs, in the prescribed format to Joint Secretary (Administration), Department of Economic Affairs, North Block, New Delhi latest by 15th January. [link]

1. I am quite surprised to observe complete absence of any criticism of rating agencies in the recent developments. The recent downgrades by CRISIL (e.g. Unitech which you had blogged on) and other rating agencies have once again proved how far they fall behind the curve, when it comes to providing reliable info in a timely manner. The rating performance of MF schemes have also been no short of a scam. The time has come to either do away with the 'light touch regulation' of these entities or remove the regulatory sponsorship of rated instruments and let them survive on pure commercial terms.
Regards,
Anonymous1

2. World over, it has been the practice of rating agencies to be reactive than proactive and to the utter amazement of everyone, they had been continuously been unable to see ahead of the curve, say a quarter in advance, if not an year. Such dismal performance by rating agencies as also Big 4 audit firms over several decades has not brought in fresh regulations, liabilities, and they continue their march of oligopoly, thanks to regulatory loopholes and disclaimers.
Is it a impossible to err on the conservative side when the going is good, or is it their reluctance to see differently.
Probably it is a mix of all, and their absolute inability to see things with clarity and reject the herd mentality.
Why we do just have Big 4 in audit and Big 4 in rating agencies, when their performance leaves much to be desired?
Regards

3. So how would you go about changing the system. The criticism is valid, but its pointless unless viable alternatives are proposed.

Markets cannot regulate themselves asking them to start rating credit quality would be a disaster, all that would occur is a shift in chicanery from trying to convince a few analysts at agencies, to trying to convince entire market participants.

It would be disastrous for debt issuers, if their perceived default risk could change with the wind, even if materially nothing else had changed in their business.

Ultimately to some degree markets rate issuers already through the cost of their credit default swaps which change in price regardless of whether agencies have downgraded or upgraded, in fact that was the entire point of that innovation, so markets could do that. That created significant counter party risk and a whole host of its own issues, some for the better some for the worse.

The point being made is, if your suggestion is for markets to evaluate risk and to do away with ratings agencies, how would that improve things? and how would the system work?

4. I agree with all your concerns. But guys, where is the time for rating cos to sit and analyse all the papers all over again during periods like this when fate of companies change in days (not even weeks).

Unitech was a good company untill money markets were working fine. But it got into a mess when credit chocked up. And this happened in matter of few days. You expect rating agencies to review the rating of all real estate cos, NBFC's, commodity cos, Banks, CDs, CPs, mutual funds within this short period of time? Be little practical.

These are unprecented times. Understand that rating is just an opinion and not an invesment recommendation.

5. No,

it is an investment recommendation, not an opinion, in the rest of the world a debt rating is the basis of the risk premium that investors require for lending to the company.

It maybe an opinion of the perceived risk of an issuer but it is far more than just that, investors and lenders make investment decisions on those opinions. Trillions of dollars all over the world are allocated based on those opinions and companies borrowing cost depend up them It is far more than just an opinion.

Some would argue that most of this mess is caused by ratings agencies failing to give fair opinions, blind sighted by fees from issuers.

6. I have actually written about credit ratings rather often: see this search.

7. Part of this discussion is taking place here.

8. ok this is a slightly "racist" comment.

but tell me this - how many people employed in rating agencies are what you can call quants?

as far as i know, most people who work there are CA types. they are excellent in being correct, and complete, and going through the process. but innovation? i'm not so sure.

this model might have worked till the 70s when most bankers were also finance guys. but now, with the geeks having taken over banking, there is no way the accountant-filled CAs in the rating agencies can keep up.

9. I recently had an interaction with someone from an Indian rating agency. When I asked him how they would be affected, any increase in workload? lot of downgrades?
He said, the business would not be affected much. Rating business if only 30% of their activity. Most of their work is something like KPO for S&P.
When the rating cos can be so casual about it, can we expect much?

10. This is a remarkably polite and innocent discussion. Please call a spade a spade someone. That the credit rating agencies are incompetent has been known for along time. By now it's also fairly clear that they are ethically compromised. The report I've linked to has fun stuff like this:

The S.E.C. found that this was not always the case. “There does not appear to be any internal effort to shield analysts from e-mails and other communications that discuss fees and revenue from individual issuers,” the report said.

For example, in an e-mail message from November 2004, an analyst wrote that he was unsure of providing a particular rating because it could hurt revenue.

and

“It could be structured by cows and we would rate it,” an analyst wrote in April 2007, noting that she had only been able to measure “half” of a deal’s risk before providing a rating.

The only questions that remains to be answered is how deep does the corruption run and whether it is institutionalised. It's self-evident that the very model is flawed. Getting paid by the companies you are rating is akin having a judicial system where the accused pay (and get to choose) judges. Or an examination system where students get to do that with examiners.

And 'everyone' knows this. Many debt originators and repackagers are experts in this ratings-shopping game.

Polite arguments about whether ratings are opinions or recommendations exist in a make-believe world. Ratings are actually creative pieces of advertising that you buy. The evidence is all around you and has been so for a few months now.

11. The issue raised by me is that credit rating is a must, there are no two opinions on that and that should be by independent firms. But such independent firms, Big 4 in audit and CRA's have failed deliver the goods consistently in times of crisis, which means they are not capable of delivering their promises. But such results is not attracting penalties from regulatory authorities. I think they escape by shifting the blame to the concept that their work is very subjective and there can be different perspectives for the same fact.

My question why there should be an oligopoly of just 4 firms (both in audit as well as CRA's) for such an important function that embraces economies across the world.

Since there is standardization of process and procedures, why should not more players be allowed into this biz? I agree that ultimately it is the confidence of the investors in such firms that allows them to grow, but that does not mean that newer firms are not capable of delivery and why there should geographic concentration of this key vital activity. Or are there any other constraints for firms to grow on a regional basis?

Doesn't this invite anti trust laws applicable to other biz.

Is it possible to establish independence by delinking the remuneration from the investor.

Can we look at a common pool of fund raised through a charge on the securities transactions, and this should help in running an organisation along the lines of BBC?

Regards

12. Respected sir/ma'm

I am Krishan Kumar, I have completed my B.Tech (Computer science) and a MBA (SEM) student pursuing my degree program from Center for Development of Advanced Computing (CDAC) Noida.I have just given my 3rd sem examinations and now have to engage myself in training session for 3 month's to acquire knowledge and experience in my field.

I would be grateful if you could send the list of IT companies in which i can apply for project (Internship) and also tell me what is the procedure to apply.

Elementary skills of :
Java, ERP, Database, Finance, Operations management , marketing management,

Thank you
Krishan Kumar

13. Myself Mahesh J.Chauhan. I have completed my B.sc&MMS(1stSEM) student pursuing my MMS degree program from Mumbai university.
I would be grateful if you could send the list of finance companies in which Ican apply for project (Internship) and also tell me what is the procedure to apply.

14. Myself naveen ahuja i am doing MBA from IIMM pune. i want to do summer training in marketing. could you please send me a list of companies where i can apply and also tell me what is procedure.

15. i m a student of BA honors economics, 2nd year in SGTB Khalsa college, DU. i wanna do internship for a month in the month of december. kindly suggest me some companies for that and the procedure also.

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