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Little faith in credit-rating reform

Bob Moon Sep 19, 2007
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Little faith in credit-rating reform

Bob Moon Sep 19, 2007
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TEXT OF STORY

Doug Krizner: There’s been no shortage of finger-pointing during the cleanup of this mortgage mess. A lot of anger has been focused at the agencies responsible for rating the credit worthiness of those investments. Firms like Moody’s.

Now, the company may change how it issues ratings, but critics dismiss the move as an attempt to ward off new regulation. Bob Moon has more.


Bob Moon: Do you believe? Then place your hands over your investment portfolio and declare your faith in the ones who swear to its goodness:

Sylvain Raynes: The ratings business, as it stands today, is a quasi-religion that does not have any more to offer than that.

Sylvain Raynes is a former Moody’s analyst now with R&R Consulting. He’s not impressed with Moody’s promises of self-reform. Raynes says the agencies need an industry-wide investment-valuation standard to replace their faith-based rankings.

Raynes: Investors have been confused for years — in fact, decades. We need to un-confuse them. The people who rate them have to use a single method.

The vow of self-reform also doesn’t satisfy Ohio’s Attorney General Marc Dann, who has little faith the industry will address its most serious conflicts.

Marc Dann: Right now, it’s all about getting business. And you don’t get business from investment banks unless they’re able to issue bonds, and you don’t get paid as a bond-rating agency until the bonds are issued. And so the incentives are all backwards.

Dann says it’s already clear voluntary compliance hasn’t worked.

In Los Angeles, I’m Bob Moon for Marketplace.

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