Unchanged, unpunished, unrepentant, unreliable:: Ratings agencies – authorised to take money under false pretences


A closeup taken on December 31, 2011 in Lille, shows triple

The two biggest rating agencies refused to say sorry for their role in the financial crisis that began in 2007-08, instead telling MPs that investors should not pay too much attention to what they say.

"Ratings are opinions. They are one piece of important information which is available to the market and investors, but there are many other pieces of relevant information around about credit decision making," Mr Crawley said.

"We have been clear that we do not expect an individual investor, or at the other end of the spectrum a sophisticated asset manager, to rely solely on what we provide."

Mr Taylor said that although ratings were a good indication of long-term credit worthiness, there was no guarantee that agencies would not miss things in the future.

"We don’t have a crystal ball. We can’t predict the future.

Ratings agencies Moody’s and Standard & Poor’s refuse to apologise to MPs for financial crisis

The simple truth is that, ANYONE who thought that Rating Agencies actually could predict the future, should have their shoelaces and belt removed immediately! The more complex version…that is no less truthful…is that no-one can predict the future, even with access to an infinite amount of data about the present or immediate past.

I am not sure whether I find their arrogance or ignorance more offensive and, in the view of their role in the financial crisis, wonder why their “opinions” still so sought-after and costly?

At Ontonix we offer a credible, quantitative, cost effective [on-line] alternative:

Ontonix: Ratings – From an Opinion to Science

   

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Lending…”my arse”: Small firms losing out on backing from major banks


Of course I cannot speak for anyone else but once I hear these words “The BBA said…” I feel instantly tense and irritated. I can only think that it is something to do with an intense dislike of being treated like an idiot. Particularly, by an organisation intent upon defending the indefensible at the expense of individuals and companies without whom they would be unable to continue to ply their trade.

I can remember the first time I felt this way. It was in the late 80’s when the then Manager of my local RBS told me that the branch was to close. It had come as a bit of a shock to him (an absolute gentleman by the name of Brain Peach) but he was “of an age” that he wasn’t too stressed about it – the same could not be said for all of his staff. To say that he was less than convincing when he delivered the HO message would be a sweeping understatement, can you figure out why?:

“In an effort to improve the service to local businesses, this branch is closing…”

I was much less cynical then but still marvelled at what I was being asked to believe. Nowadays, the banks have turned “opacity” and “spin” into a very expensive artform practised amongst themselves as well as with Regulators an customers!

Jim Royle
Image by Commonorgarden via Flickr

…the FSB also criticised the practice of some banks of calling in business loans, renewing them, and calling them “new lending”

…The Bank of England figures show lending to SMEs was £18.8bn in the third quarter, down from £20.5bn in the second quarter but higher than the first quarter’s £16.8bn. The BBA said the Merlin banks are “on track to meet their business lending commitments”. Defending the SME shortfall, it says: “The overall economic environment remains challenging and business demand remains weak.”

via Small firms losing out on backing from major banks – Herald Scotland | Business | Corporate & SME.

Rating Agencies Fail


Glad to see that the Rating Agencies are (yet again) in the headlines for all the “right” reasons…of course this is only my “opinion”!

Politics has still not realized the mistake that was made: Adopting that mindset. For the trader in his hyper-competitive market, his psychopathic behaviour makes perfect sense. For a society, it is pure cancer. As one German entertainer put it nicely:

I’d like to know if she [german chancellor Merkel] has a market-compliant democracy in mind. And if so, I’d like to know if she’s also thought about a democracy-compliant market.

via Rating Agencies Fail | Free Everything.

 

Ratings “farce”: SMEs facing credit ratings ‘lucky dip’


I am sickened at the thought of businesses upon which OUR recovery must be based, being treated in such a manner! The impact of Rating Agency “opinions” – which by definition are subjective – upon our global economy should be evidence enough that their influence is extremely dangerous and that an alternative, common, means of rating is a MUST.

Stories such as this one highlight the potential for them to continue to wreak havoc upon any chance of a recovery. We NEED to (re)build from the bottom up and inconsistencies such as a “spread” from £8,400 – £108,000 is all the justification a reluctant lender needs.

Where will the innovation come from, if “creative destruction”, from within crumbling institutions is stifled and small business starved of funding? If finance is about making an advance (loan) in anticipation of the rewards exceeding risk, doesn’t it mean that INNOVATION is a more stable (and robust) form of currency?

The timing of this piece is of particular interest to me and to Ontonix as we have just rated a rating agency (Moody’s)…check other recent blog items…and, of course, we have our own scientific, objective, rating service!

Rate a business (OntoNet)

Small and medium enterprises (SMEs) in Britain face a ‘lucky dip’ when it comes to credit ratings, Management Today reports.

Following news that poor consumer demand and rising costs have put extra pressure on SMEs, it is important to keep a good credit rating so companies can get the best prices on business insurance.

However, a new investigation into credit rating agencies has found that many are giving out contradictory ratings to similar companies.

One company received credit limits varying from £8,400 by one agency, up to £108,000 by another.

Poor credit ratings can severely harm a business, causing refused loans or high interest rates on loans that may be necessary for business growth, while also making it harder to get good business insurance rates.

via SMEs facing credit ratings ‘lucky dip’ claims new investigation.

Ontonix: Ratings – From an Opinion to Science


In January 2011 The Financial Crisis Inquiry Committee claimed that “The three credit rating agencies were key enablers of the financial meltdown”. Failing investment banks and large corporations enjoyed investment-grade ratings days before collapse.

Rating agencies claimed that ratings represent a mere opinion. And this is precisely the problem. Rating agencies represent a fundamental source of information for investors. Investors will evidently tend to invest in assets that are judged as investment-grade rather than junk. However, the First Amendment of the U.S. Constitution protects “publishers” guaranteeing them the freedom of speech.

A method of rating does not have to be perfect (is financial data 100% accurate?). But it has to be consistent. Serious science starts with consistent measurements. You can always improve a metric, make it more accurate, but you must use it consistently. If you don’t then mathematics indeed becomes an opinion and we don’t want that. Read more of this post