Friday, 11 July 2008

Two completely unrelated things

But both worth a look. The first is this article on Finance Week about credit rating agencies. Here's the beef:

Of the 1,956 investment professionals surveyed by the CFA Institute, 11% said they had seen a credit rating agency change a bond grade in response to pressure from an issuer, underwriter or investor. Of the 211 respondents who said they had witnessed an agency change its rating in response to pressure, 51% said the pressure took the form of a threat “to take future ratings business to other” rating agencies.

I know there is a fundamental conflict in rating agencies being paid by those they rate, but I still find this genuinely shocking.

On a completely unrelated point I've been flicking through some articles on the (defunct) Rockridge Institute's website. Lots of interesting stuff on there from George Lakoff and others on reframing language. Here's one to kick you off.

2 comments:

Richard Young said...

Credit ratings are a murky area. But although, like auditors, they have an interest in skating around minor problems to suit clients, their credibility relies on ensuring that the bigger issues are caught. That's partly why they've taken such a kicking over the credit crunch - and partly why they're likely to utterly f*** companies carrying complex financial instruments as a result of fair value accounting. Mark-to-market of nominally value-less assets is much too big to fudge, so expect even more bad blood between agencies and clients...

Tom Powdrill said...

Do you think there ought to be reform here then? I have heard some argue, for instance, that shareholders should employ their own auditors (I know they techinally appoint auditors at AGMs, but the idea I think is to employ a shadow firm).

Not sure how you could work somethig similar in the credit ratings world.