Financial Markets & Investors should stop taking Rating Agencies seriously.They are meant to be Prevenient Warnings to warn investors of the underlying risks of an investment, before they're reflected in the market price. However, that is exactly what the rating agencies have failed to do of late. Not only have they done too little too late, but also lacked globally consistent standards of risk assessment.
One only needs to look as far as the European nations (ticking time bomb) having stronger ratings than China & India, who not only are today's global growth leaders, but also the ones that other countries are hoping will come to their rescue..!
And if that hasn't convinced you yet, shall I remind you that one of the the biggest culprits behind the 2008 GFC were the rating agencies who gave Sub-Prime CDOs (Collateralized Debt Obligations) and other similar Toxic securities top-notch AAA ratings. Investors who were holding such AAA bonds across the globe (Banks, Pension Funds, Insurance Agencies, Individuals, etc) were left with worthless paper, leading to bankruptcies & bail-outs. None of this would have happened if the rating agencies did not give those misleading ratings to those toxic securities.!
Come to think about it, this is not surprising at all, considering the fact that these rating agencies make money off the very same firms whose securities they are about to rate. Does anyone else also see a Conflict of Interest here?
Come to think about it, this is not surprising at all, considering the fact that these rating agencies make money off the very same firms whose securities they are about to rate. Does anyone else also see a Conflict of Interest here?
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