"If your product is a stamp of approval where your highest rating is a curse to those who receive it, and is shunned by those who are supposed to use it, you have problems"
In this situation, Einhorn is simply playing the role of being the first person to say publicly what others have long said privately. Some may choose to criticize the ratings agencies by citing specific examples of incompetence (AIG, MBIA etc.), while others will go to the lengths of proving, quantitatively, that these entities are no more than lagging market reactors. For the sake of our assessments however, simply understanding the manner by which the ratings firms are compensated is enough to deter us from ever using them for anything more than an ancillary opinion. The fact is, Moody's et al are compensated by the firm whose debt they are supposed to objectively rate. It doesn't take too much experience in the business world to understand the typical relationship between a Client and a Service Provider. The relationship is rarely, if ever, a balanced and objective exchange between two parties whose goals are perfectly aligned. Need we go further?
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