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The NY Times Debate On Fixing The Rating Agencies: First Realize They're Not Broken!!!

Reggie Middleton's picture





 

I participated in a very interesting debate in the NY Times regarding how to fix the rating agencies

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I end my contribution to the debate as follows:

How do you fix this (if it’s not obvious already)?

Eliminate perverse incentives. Whoever wants to buy an asset should have to pay to have it rated. Credit agencies shouldn’t be paid by the same entities they might have to chastise.

It would also help if agencies could no longer hide behind the excuse that their rating was only an opinion, rather than empirical research they must stand behind. There's no need to do a reliable job if you face no credible legal liability, and the government essentially limits the competition you face.

For six years, I have run circles around the three major agencies with timely and accurate predictions of where regional banks, commercial/investment banks (Bear Stearns collapseLehman Brothers), insurerscommercial real estateresidential real estate, US home builders (Lennar), and the pan-European sovereign debt crisis participants were heading. If I can do it, the agencies can too.

One thing many commenters seem to be confused about is the ability for investors to pay for ratings. You don't get anything for free. Never does something emanate from nothing. Any credible advice HAS to be paid for, period! S&P actually sells equity research to the end user, yet gives away fixed income research. Which do you think is the most credible? Most fized income investors are institutions, who are more than capable of paying for advice, and regularly do so anyway. 

We can fix the problems we have with rating agencies as end users, but you have to realize that the agencies themselves are not broken. It appears as if the agencies are broken only if you don't understand their business model...

This clip is an excerpt from the VPRO documentary on rating agencies, a worthwhile view. In the meantime, let's revisit my historical viewpoints on the topic:

The Embarrassingly Ugly Truth About Spain: The IMF, EC and ALL Major Rating Agencies Are LYING!!!

Rating Agencies vs Reggie Middleton, Part 3

 


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Wed, 02/20/2013 - 18:12 | Link to Comment MrBoompi
MrBoompi's picture

Please pay me a hefty sum to tell you your pile of excrement smells like apple butter.

Wed, 02/20/2013 - 16:58 | Link to Comment Herkimer Jerkimer
Herkimer Jerkimer's picture

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The SEC needs to sit down with a bunch of 80+ year old grannies, like my mud'da, and they'll tell'em exactly how to fix the situation.

A couple of good ear-twists, and these hands-in-the-cookie-jar-bratty-children/thieves would be fixed.

Common ƒµç?ing sense.

 

•J•
V-V

Wed, 02/20/2013 - 16:50 | Link to Comment orangegeek
orangegeek's picture

Ratings agencies sell their publications.  That's how they make profits.  They have no obligation whatsoever to be right or wrong about it.

 

In short, the ratings agencies are just fine.  It's the ones that believe their reports that don't understand.

Wed, 02/20/2013 - 16:13 | Link to Comment falak pema
falak pema's picture

reggie has an original lens , doesn't mean he has a true lens...

make your own conclusions on where lies "truth".

Wed, 02/20/2013 - 15:48 | Link to Comment tony bonn
tony bonn's picture

in general, reggie, you are absolutely correct...the presence of perverse incentives and absence of caveat emptor and moral hazard have created a toxic stew....on the other hand, the rating agencies are corrupt and criminal and should be prosecuted for selling goat shit as chateau briand...it's like a prospective home buyer relying on the horse shit blatherings of a real estate agent....the real estate agent represents the seller - not the buyer....

Wed, 02/20/2013 - 15:12 | Link to Comment ebworthen
ebworthen's picture

It's a tragicomedy to watch the S.E.C. go after ratings agencies.

It's like going after sports commentators to punish professional atheletes for doping.

If we could return to the rule-of-law and sound money where banks and corporations actually go broke and lose something for speculating - and people like Jon Corzine and LIBOR rigging banks and employees are actually prosecuted - we would not need ratings agencies.

I doubt things will change unless there is banker blood in the streets; we are five years past a generational collapse and nothing has changed beyond rewarding the malfeasant for their skullduggery.

Going after ratings agencies is an insult to the citizenry.

I feel spat upon in more ways than one.

Wed, 02/20/2013 - 14:37 | Link to Comment Vegetius
Vegetius's picture

Its time to fix things so the Government gets the outcome it requires. The fix is in.

“The more corrupt the state, the more numerous the laws.”

- Tacitus

Wed, 02/20/2013 - 13:30 | Link to Comment semperfi
semperfi's picture

fuck NYTimes !

Wed, 02/20/2013 - 14:30 | Link to Comment NotApplicable
NotApplicable's picture

What's truly sad is the fact that you even had to make these arguments, as your claims are self-evident. Which of course, is EXACTLY the reason you shouldn't. Because worse yet is the fact that you've lent your legitimacy to the sophistry mill d.b.a. "The New York Times."

Did you ever think it strange that you are having to state the obvious in an "intellectual" setting?

Anybody with any sense would NEVER participate in such a fraud. If not for people like you, they'd lost their "paper of record" moniker years ago. Eventually your association with both them and CNBC will ensure your name is well known by idiots.

 

Wed, 02/20/2013 - 17:24 | Link to Comment thisandthat
thisandthat's picture

Interesting.

Tell us about how did you stopped being an idiot yourself and came about the realization they're a discredited fraud unworthy of legitimation - all by yourself, or did someone else play a part in it? And do you advocate preaching to the choir, then?

 

Wed, 02/20/2013 - 15:45 | Link to Comment SafelyGraze
SafelyGraze's picture

I'm from the nyt and I'm here to help.

Do NOT follow this link or you will be banned from the site!