http://en.wikipedia.org/wiki/Standard_&_Poor's#Criticism Have credit rating agencies such as S&P undergone a transformation of chararcter? They were 100% in bed with the very reasons that got the world into this mess, and now they sit on the sidelines casting their blessing over entire nations. We seem to have forgotten that their inability to accurately rate companies and countries, is part of the reason we're in this freaking mess!
1. What the CRA's was rating was a combination of good and bad paper, combined in a highly complex way that, according to the math, was supposed to minimize risk. So complex, that the CRA's had to take the creators word of it, it was beyond their understanding. Profits to the seller depended on how many investments they sold. 2. Banks loan money into existance, how much depends on the leverage used (10% created 9X, 5% 19X, etc.). So, both the seller and the buyer wanted AAA ratings, due to regulations on leveraging ratios. Profits for the banks depended on how much money they could loan. 3. Buyers and sellers would "shop" CRA's to get the highest rating. Profits for the CRA's came from how many ratings they sold. 4. What was the penalty for the CRA's over rating? 5. What was the penalty for creating the complex investment? 6. What was the penalty for buying the complex investment? Government regulators provide false security, investors don't do their due diligence. Too big to fail, bails out creditors at 100%, they don't need to do their due diligence. The result, risk is rewarded resulting in huge private profit - huge public loss.
