December 12, 2011

Credit Agencies: Risk To Your Fiscal Health

"MF Global’s investors may not have been fully informed about the European bet, but the firm’s executives had been explaining the strategy to the ratings agencies for months, according to two people with direct knowledge of the conversations. Indeed, Moody’s Investors Service and Standard & Poor’s had applauded Mr. Corzine’s effort to overhaul the firm, a move that included ratcheting up risk.
“We consider the most recent strategic plan of the new C.E.O. Jon Corzine to be sound,” S.& P. said in 2010, while acknowledging the plan “will incrementally increase the firm’s risk profile.”
But the move by Finra to force the extra capital cushion appeared to only unnerve the ratings agencies when news reports about it emerged in October. A week later,Moody’s cut its rating on MF Global to a notch above junk, pointing to the European debt holdings." A Romance With Risk That Brought On a Panic, BY AZAM AHMEDBEN PROTESS AND SUSANNE CRAIG. New York Times, December 12, 2012
 Credit rating agencies, like Standard & Poor's and Moody's recieve their fees from the companies that they are rating. Why are some people surprised when a company fails even when having a high rating from these companies. The fox is guarding the chick coup.

Why are rating agencies allowed to be bought off by the public companies that they are rating? Either this needs to change orthe agencies need to be shut down. They are doing a disservice.

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