Credit Ratings Agencies Under Fire
http://thekojonnamdishow.org/shows/2012-02-08/credit-ratings-agencies-under-fire
Do the coveted triple AAA ratings issued by Standard & Poor’s, Fitch and Moody’s really represent the gold standard of creditworthiness? As countries struggle with massive debt, these 'seals of approval' are being retracted, prompting calls for reform around the globe. We explore the role credit ratings agencies play, and how their judgments affect local, national and global economy.
Guests
Lawrence J. White
Professor of Economics, The Stern School of Business at New York University
Sebastian Mallaby
Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Senior Fellow in International Economics, The Council on Foreign Relations
Comments
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I was surprised at Mr. Mallaby's defence of the ratings of CDO-squared and CDO-cubed bonds (collaeralized debt obligations comprised of BBB- and lower-rated traches), especially given the failure rates of these vehicles. Rather than diversifying risks, as Mr. Mallaby indicated in his response to the caller, they instead concentrated them. Results were altogether ugly on the investment side.
Simon Johnson and James Kwak, who wrote Thirteen Bankers, agreed that these structures were highly questionable for deserving AAA ratings. Your participants seemed to ignore and gloss over some of the more egregious examples of rating agency missteps.