In 2007, the big three rating agencies underwent huge changes. Traditionally the number of the “AAA rating” is reserved for corporations with strong balance sheets in developed countries. After the boom in structured finance; rating agencies found by becoming involved in the insurance process of issuing bonds they could increase profits. How? By issuing triple-A ratings to non-deserving bonds.
The problem is that the credit rating agencies are not really at fault when you see it from their perspective. The bottom line for the rating agency- or any business for that matter, is the amount of money you bring in at the end of the day. Yet, what Moody, Fitch, and the rest forgot was their social responsibility to the public. Though passing bogus bonds as AAA ratings, Moody alone made over a billion dollars a year. The general public? In the financial meltdown of 2008 investment funds, schools, and retirement homes lost all their money.
2012. As we saw the European Crisis unfold, a few countries had been downgraded. However, can we really trust the agencies that fueled the financial crisis of 2008 to value our countries fairly? Who should we now trust to rate bonds and countries appropriately? No one. Now, investors must valuate companies, bonds, and countries using their own abilities.
Careful. Danger lurks.
References:
Amery, Paul. “The Great Credit Rating Scandal.” Moneyweek.com. Moneyweek, 6 Feb. 2008. Web. 13 Sept. 2012. <http://www.moneyweek.com/investments/stock-markets/the-great-credit-rating-scandal>.
Related: