tag:blogger.com,1999:blog-8152901575140311047.post2547248766257490952..comments2024-03-28T12:49:46.624-04:00Comments on Musings on Markets: Bond Ratings: Why, how and what next?Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-8152901575140311047.post-71378645654604691222011-04-23T12:27:22.441-04:002011-04-23T12:27:22.441-04:00Found this post extremely interesting. I have just...Found this post extremely interesting. I have just written a dissertation on a similar topic. In my opinion i feel its the advisory services offered by the CRAs, that should really be under scrutiny. <br /><br />How can a CRA providing an advisory service to the bond issuer and then also rating it possibly be independent? They know how greater level of toxic debt can be bundled in whilst still remaining a AAA rated bond. It seems a case of whoever pays the piper calls the tune....Annabel Thomashttps://www.blogger.com/profile/01303551277373098341noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-3197023107217859312009-10-21T14:07:05.194-04:002009-10-21T14:07:05.194-04:00Prof. Damodaran, you rock!! Your blog gives me new...Prof. Damodaran, you rock!! Your blog gives me new directions to think every time I read it. Lucky students who get a chance to sit in your classroom. ThanksAmithttps://www.blogger.com/profile/05630280590371178109noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-18434853529273063782009-10-20T10:15:28.216-04:002009-10-20T10:15:28.216-04:00On bond ratings,i don't think Moody's or S...On bond ratings,i don't think Moody's or S&P went wring because they were paid for by the Companies they were rating. Because there is hardly any competition among rating agencies, Companies have no choice but to get themselves rated from the three big agencies. So where does the need arise for giving better ratings? if that was the case there would be no companies rated CCC ect. I think they just got caught in the momentum and did not do the basic stuff right. Now that the crisis has happened, the rating agencies have been pushed to the ground, it definately makes sense to trust them more now than ever as they would be at their best having borne the brunt of everyone's anger the past two years.Gaurav Mehtahttps://www.blogger.com/profile/06728937525354512495noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-65905390616374248512009-10-20T09:25:37.646-04:002009-10-20T09:25:37.646-04:00Blamin squarely on bond ratin agency is not justif...Blamin squarely on bond ratin agency is not justified by any means watsoever...it was a collective failure and more importantly it is the greed that did everyone in including the issuers to intermediares to investors....<br /><br />the only solution tht seems wise to me is settin up Central authority regulatin agencies ratin bonds...it mke sense since the public investment is attracted based on rating of these agencies n must be regulated....<br /><br />To be honest we all r gradually gettin insensitive to such bubbles...n can only wait n watch wats next....people who have their greed in check will survive and make money..n rest will disappear eventually...Immortalhttps://www.blogger.com/profile/02889853969712537454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-875002834137023762009-10-20T09:21:48.540-04:002009-10-20T09:21:48.540-04:00This comment has been removed by the author.Immortalhttps://www.blogger.com/profile/02889853969712537454noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-569781405138984952009-10-18T10:18:55.479-04:002009-10-18T10:18:55.479-04:00Sounds to me like selective rationalization. If th...Sounds to me like selective rationalization. If the market system is to blame for whatever pain has been inflicted in these countries -I presume that you are talking about Asia - then it must have been also to blame for whatever gain was generated in the previous two decades. You know what! Most people would take the trade off. India and China operated for millenniums under your alternate government-controlled (elite run) systems and what did they have to show for it? In two decades, the market system has changed both countries in immense ways. Has all the change been for the better? Of course, not.. But consider the millions of people who have been raised from poverty to the middle class in both countries before you decide the old system worked better.<br />One more thing.. When you point your finger at the "tycoons" (I presume you are talking about investment bankers here) remember that four fingers are pointing back at you. Anyone who bought a house bought into this vision of everlasting glory as well..Aswath Damodaranhttps://www.blogger.com/profile/12021594649672906878noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-4850057844276155022009-10-18T04:46:52.656-04:002009-10-18T04:46:52.656-04:00housing prices would always go up....everyone thou...housing prices would always go up....everyone thought so...the banks, the ratings agencies and even the govt., because otherwise a well thought out and prudent legislation would have been in place. The irony is that how such people and organizations with such vast knowledge and experience in finance could think that housing prices would go up forever? That the very concept of a bubble was redundant.... Now Mr. Damodaran what these tycoons of ur country have done is irreparable esp. in terms of the damage that it has caused to the economies that were aping the USA. ..... These economies had lately converted to the open market system.. in the hope that it was the only answer to the questions of hunger and poverty that their economy faced...... After opening up they became outsourcing hubs for the US... most of them couldn't develop their own industries... and their ecopnomies became solely dependent on the performance of the US and the whims and fancies of its policy makers...........Dueto the slowdown it is these countries that have been greatly affected......True the US is worried about its own unemployment problems.... bot what about people who in distant lands work for the US, though not being its citizents,... and earn some amt. of money that is pathetically low to meet basic human necessities....... Instead of being too preoccupied with its own <= 8.5% unemployment rate.....Doesn't it become imperative for the us to do more.......<br /><br />And now coming back to bond ratings.....it seems much like astrology .... where that astrologer commands respect whose prophecies are more consistent than others..... the very nature of the market should be to encourage more no. of agencies rather than just S & P and Moody's..........In this pool soon will emerge an agency that is consistent and demands the respect of the market.<br /><br />Another worry area is why change in ratings lag the way markets see things... doesn't it also mean that the ratings are just a reflection of what the market already knows......... Rather it also implies that the kind of insider info that the ratings agencies are supposed to obtain fron the company management.. is not done... and what they get is just rosy news....<br /><br /><br />And about mortgage backed bonds...the lesser said the better....the very evident lack of info... makes the ratings extremely vulnerable......i would even think that in this particular segment.....ratings are lobbied for and much influenced.........comments Mr. DamodaranAbhishek Kumarhttps://www.blogger.com/profile/15444948810107336077noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-52442986593649585752009-10-16T22:24:58.343-04:002009-10-16T22:24:58.343-04:00I'm not sure if competition would lead to more...I'm not sure if competition would lead to more accurate ratings. Agencies have been competing for a long time and I don't think the market really knows which agency has been most "right" over time.<br /><br />Maybe some "ratings-squared" agency could publish ratings on the ratings agencies' actual performance over time, allowing people to know who is actually better, and incentivize the agencies to be more accurate.Steve Chuanghttps://www.blogger.com/profile/07562349300557231780noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-85615949315801113052009-10-16T17:02:59.960-04:002009-10-16T17:02:59.960-04:00There is no way to blame the credit mess on the ra...There is no way to blame the credit mess on the rating agencies. Aside from the municipal bond market, almost all bonds (i.e. corporates and asset backed securities) are owned by institutional investors, typically with hundreds of millions of dollars under management. These investors should have their own credit analysts on staff, not rely on the rating agencies. See our views on credit analysis at: www.commentsoncredit.comRon Carletonhttps://www.blogger.com/profile/17828780332648145637noreply@blogger.com