Credit Ratings

Excerpts from the Avid’s Live Chat Room…

The three leading rating companies, all based in New York, say that policing CDOs isn’t their job. They just offer their educated opinions, says Noel Kirnon, senior managing director at Moody’s.“What we’re saying is that many people have the tendency to rely on [the ratings], and we want to make sure that they don’t,” says Kirnon, whose firm commands 39 percent of the global credit-rating market by revenue.

S&P, which controls 40 percent, asks investors in its published CDO ratings not to base any investment decision on its analysis. Fitch, which has 16 percent of the worldwide credit-rating field, says its analysis are opinions and investors shouldn’t rely on them. The rating companies apply disclaimers about their analysis. S&P says in small print: “Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.”Joseph Mason, a finance professor at Philadelphia’s Drexel University and a former economist at the U.S. Treasury Department, says the ratings are undermined by the disclaimers.“I laugh about Moody’s and S&P disclaimers,” he says. “The ratings giveth and the disclaimer takes it away. Once you’re through with the disclaimers, you’re left with very little new information.”

Sounds like most stock prospectuses these days. LOL If one isn’t supposed to rely on a rating agencies opinion on risk, I wonder why they would actually offer an opinion? Oh well, equities appear to be far less risky these days as compared to debt instruments…………. should seek out new highs on equities as investor’s risk appetite decreases IMO.