After Standard and Poor downgraded the debt rating of the US, some people noticed that this was the same company that had given AAA ratings to some of the real estate derivatives that had recently gone south. Not only that, but the result of the downgrade was that the stock market dropped, and people reacted by putting their money where it would be safe — in US treasury bonds, which supposedly were just declared less safe.
It does make you wonder about what these supposed rating services do. Well, you don’t have to wonder any more. A recently retired senior vice president of Moody’s rating service is pointing out that these companies are rife with conflicts of interest, corruption, and greed. Which should be a surprise to nobody, since these companies are paid by the companies who are getting their financial products rated, so if they don’t like a rating they can simply take their business elsewhere. Talk about a recipe for disaster.
In fact, after reading this my only question is why anyone takes these rating companies seriously, or pays any attention to their obviously meaningless ratings, since a corporation can buy any rating they want.
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There was a story about this on the day after the credit downgrade (saturday) on NPR. They talked about how the ratings agencies were created in the railroad era to show investors what companies were trustworthy and wouldn’t abscond with money.
The government backed these agencies, naturally, because it boosted their status. But, as all things do, the tendrils of greed and corruption slowly found their way into Fitch, Moody’s, and S&P.
Seriously though, my aunt was freaking out when the credit was downgraded, and I asked her was she this upset when the MBS were rated AAA and then found to be straight junk. She hasn’t brought it up since.
Here’s my general rule (and as Poli Sci major, I feel inclined to share this with everyone): Until something actually has a direct impact on your life, it is not important. S&P downgraded America’s credit? Am I still making minimum wage like I was before it? Yes. Does my $3 still buy a loaf of bread? Yes. Is the price of gas still high? Yes. Then why should I care about the downgrade, especially if NO INVESTOR IN THE WORLD DID, but instead flocked in droves to buy AA+ rated treasury bonds?
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This is the subject of “inside Job”. Not just what it did to our country, but what it did to Europe who bought into our Toxic mortgages. Rated AAA through fraud. And the Economic professors at Harvard and others are on the boards of companies and are paid to teach the propaganda.
Saw this coming a mile away, lower credit rating, get bashed.
I can twist this though, if we can shrug it off because they have made bad decisions in the past…then I guess we can shrug off the AAA they kept on us