Damned if you do

I almost feel sorry for the credit ratings agencies.

Sure, their business model is fraught with conflicts of interest and the daily opportunity for ethical disasters.  Maybe they totally underestimated the risk inherent in MBS and demonstrated a complete lack of ability to understand correlation, diversification and outliers. Sure, their ratings have been shown to lag market performance rather than lead it. And yes, they downgraded the US only to have yields decrease further.

But now that they are open to the risks in Europe, and the closer-to-home risks of apathy and not being on top of changes in risks of European sovereign bonds, now they get a tongue-lashing from politicians and anyone else with an opinion. Nobody likes to be downgraded, but that doesn’t mean the risks aren’t there.

I see this move as a more sensible move than many in the last few years, so I do feel a little sorry for them now.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

Leave a comment

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.