why does the market still listen to Moody/S&P ?
the credit rating agencies have shown us how incompetent and corruptible they are, when they blindly rated junk bonds AAA. They are thinking now of downgrading US credit rating... Should we really take those guys seriously ?
They're hard to take seriously, but that shouldn't keep you from sharing some of their concerns over the debt ceiling negotiations.
They wanted to rate some of the "AAA" bonds as A- or BBB+, but the Civil Rights Act prevented that. RMBS out of Detriot, Cleveland, Haarlem, used to be junk bonds, but the Community Reinvestment Act forced rating agencies and Banks to treat the residents in those cities as if they had the same credits as those in Iowa or New Hampshire. RETARDS
If you're going to make stuff up, at least be somewhat credible.
I asked the exact same question today...
On a serious note though, most of the large debt holders have their own credit rating agencies. China, for example, has their own credit rating independent of Moody's and S&P. (And they just downgraded us from A+ to A, according to ZeroHedge)
They come out and bash us for issuing more debt and watch they will be the first to buy it because they have to. Just forcing them to buy bonds at a premium. US is still the world's safety net for fixed income. Even when the skies falling people come running to the safe haven. Sure it's not what it used to be, but China keeps buying and will continue to keep buying. IMO....
Yah, the credit rating agencies are the problem. Give me a break. They are a scape goat. Everyone knows that they rated MBS AAA because if they didn't, WS firms would just shop around for a better rating. The banks are guilty for making the shit in the first place.
Anyway, to answer your question, its because credit ratings do matter. Certain funds are required to keep a certain percentage of assets in AAA securities (or lower notches of investment grade), and since they all use Moody/S&P/Fitch as the standard, they need to continue to look at these ratings in order to keep their portfolio in line with their risk limits. They haven't lost all credibility, much like most American's continue to borrow money from big banks.
Get out of my head LIBs, was just gonna post the exact same thing lol.
As LIBOR says, their use is mainly an institutional one.
However, the rating agencies all work on a reaction basis, if they downgrade something the market has probably known about it for some time.
Isn't it just behavioral finance? If they downgrade, you know market's going to sell, so you want to be the first to sell, and so everyone sells... Self fulfilling prophecy.
S&P is one of the core driver of market, specifically the US market
yes they do
Regulations, covenants, etc still rely on those ratings. Just look at EFSF.
After the financial crisis and reading articles like the from the FT below, I don't think you can trust rating agencies as far as you can throw them. The rating business is littered with conflicts of interest and at the end of the day, these companies have an incentive (in the short term) to rate bonds higher, not rate them "correctly".
http://gcalhoun.files.wordpress.com/2014/01/13-09-18-nyt-sp-bond-deals-are-on-the-rise-since-it-relaxed-rating-criteria.pdf
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