Ratings Agency Rotten To Core With Conflicts, Corruption, And Greed

A former Moody's employee has revealed what we've suspected for years - in their current form, ratings agencies are corrupt beyond redemption.  They should be abolished.

Just how low will credit ratings agencies go?

Credit ratings agencies are a protection racket. Issuers have to get a rating and at the same time, they have to pay the rating agency for it. If they don't pay then their rating will suffer, and this will cost the issuer.

Now the ratings agencies are worried about potential liability if they are wrong about their ratings. So they have added clauses to their ratings contracts requiring that the debt issuer indemnify them if they are sued. The self evident blog presents a couple of examples of this.

It would be one thing if the issuers had a choice about whether or not they could get a rating, but they don't. They have to participate in the protection racket. But now the local thugs are wanting the victims to pay their court costs as well.

There is a better way. One in which ratings are paid for by the bond buyer and where ratings firms don't have monopolies and are liable for their mistakes. Essentially a free market for ratings.

More on credit rating agencies

A great post buy Steve Allen on the ratings agencies.

Ratings agencies become more irrelevant...

At least that is the view in this article here which argues that Moody's downgrades don't really matter.

Buffet and Moodys

Warren Buffet is rather quiet about the complicity of ratings agencies in the current mess, which is surprising given that he has happily pointed the finger at the other usual suspects.

Could his silence have anything to do with the fact that Berkshire Hathaway owns 20% of Moodys? The NYT takes up the issue.