ML-Implode News - Triple-A Failure

Two key questions are whether the credit agencies â€” which benefit from a unique series of government charters â€” enjoy too much official protection and whether their judgment was tainted. Presumably to forestall criticism and possible legislation, Moodyâ€™s and S.&P. have announced reforms. But they reject the notion that they should have been more vigilant. Instead, they lay the blame on the mortgage holders who turned out to be deadbeats, many of whom lied to obtain their loans.

You hear that, America? You're all deadbeats.

In all seriousness, I wonder how the ratings agencies explain the fact that their risk-assessment metrics (like FICO) have broadly failed.

Here is a snippett of the fascinating recounting of how it all got started:

The Securities and Exchange Commission, faced with the question of how to measure the capital of broker-dealers, decided to penalize brokers for holding bonds that were less than investment-grade (the term applies to Moodyâ€™s 10 top grades). This prompted a question: investment grade according to whom? The S.E.C. opted to create a new category of officially designated rating agencies, and grandfathered the big three â€” S.&P., Moodyâ€™s and Fitch. In effect, the government outsourced its regulatory function to three for-profit companies.

What could possibly go wrong, eh?

Relevant:

Triple-A Failure