Yesterday I gave myself a gentle (but frustrated!) pat on the back for seeing the credit crunch coming, today I met a bunch of very narked analysts from a credit rating agency who are even more annoyed.
Not only were they ignored all through the boom times, but when the crunch came, everyone turned round and damned the credit rating agencies.
Their problem (and ours) is structured finance. The structured finance divisions of the rating agencies were young, inexperienced and had few incentives to question the dominant market belief: that the originate and distribute model minimised and diversified risk.
Unfortunately for them (and us), it didn't; instead it magnified risks by helping to boost borrowing even further, and much of this ever-greater volume of debt had rosy-looking AAA ratings from the agencies, led by Moody's, S&P and Fitch.
It will take a long while before the mess in structure finance fades away. Until that time, rating agencies, however accurate, will struggle against credibility issues.
2 days ago