I was searching mises.org a bit for articles about the Moody’s rating service. I had briefly searched awhile back but noticed words against them are pretty few and far between. It’s not that I think people here respect them, I know this isn’t the case. Moody’s is great for calling for government stimulus/etc. so the idea they are the enemy of the US government is ridiculous.
That said, Moody’s is a private ratings agency, so people who have a tendency to believe the market is all about greed/etc. look at Moody’s as an example not of government failure, but market failure.
To me it seems like with Moody’s recent screw-ups on AAA bond ratings for horrible securities that people wouldn’t trust them anymore. I know I wouldn’t pay for anything that they do. But, they obviously continue to have some kind of customer base if they are still in business, or they are getting the benefit of something else.
Something seems amiss, but I can’t find a lot of information about this subject.
Have they made some mistakes? yes, but overall their ratings are sound. I forget the exact numbers but I think it was 99% of corporate defaults had a baa rating or worse last year.1 of the 3 companies that defaulted was a supermarket that thought it was a hedge fund and started to hedge commodity prices.
Moody’s, along with Fitch and Standard and Poors is part of a government enforced cartel of what is suppose to be a financial credit rating service industry. In addition to restriction of competition, the Federal Reserve (Don’t ask me why the Fed is involved) mandates that many financial products be rated by at least two out of the three agencies. This makes the members of the cartel accountable more to government agencies then to consumers since the government essentially secures their profits by requiring companies to purchase their services and by severely limiting any competitive alternatives.
Most critics have rightly argued that the credit rating agencies’ incentives are misaligned with the preferences of consumers. They are indeed correct, however, they have [as usual] misinterpreted the cause for the misalignment, basically reversing cause and effect: blaming markets and profit and calling for more government regulations as the solution, when in fact, they have it exactly backwards.
I understand what you are saying here, and I don’t reject it entirely, but when it comes down to it the failure they made on housing was so huge that I really think anyone should be nearly destroyed by that.
DD5, thanks for the information you provided. StrangeLoop, you followed up with exactly what I would have asked for with that AEI paper.
I just need to look at AEI a bit but I’ll be reading that later. Thanks!
Tell that to the “doctors” that practise Homeopathic medicine. Advice is only dangerous when followed – and advice will only be followed when the advice seeker has reason to trust and believe the advisor, from reputation, certification, etc.