The awful mess about rating agencies

  • As you already may know I love the work of Charles Ferguson and I watched around 10 times his documentary “inside job“. He did a wonderful job and explained very well the dark side of finance through plenty of relevent interview : Gillian Tett, Dominique Strauss Khan, Charles Morris, Nouriel Roubini, the dean of columbia business school, Christine Lagarde and so on..
  • I learnt recently that he also wrote a book in 2010-2011 and started reading it even though the book itself is not easy to get in France (and of course no translation available). I just had time to read the two first chapters but what I can already say is that it is far more interesting than the movie, far more explanations, analysis and facts.

Let’s just quote a sentence that shocked me among a few things:

The rating agencies started consulting for the banks, receiving huge fees for advising how to construct a security such that it would receive a high rating.

  • It is common to hear that judgments and ratings from rating agencies were flawed by the very fact that they were paid by the issuers of securities, but this sentence is really more than that : it is how to pay in order to cheat in a smart way so you can get a “AAA” mark for a piece of crap such abacus for instance !

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