http://news.bbc.co.uk/1/hi/business/10097107.stm
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| Quote: A European Commissioner has warned it may be necessary to further regulate the role of credit rating agencies. Michel Barnier, in charge of revamping financial services, told the European Parliament he had been surprised by the rapid deterioration of Greece's rating. | |
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| Quote: Last year the big three of Standard & Poor's, Fitch, and Moody's admitted that their assessment of securities backed by sub-prime mortgages had turned out to be incorrect. They had been accused of failing to spot the size and risk of the bad US housing debt that was resold around the world, causing multi-billion pound losses. | |
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The best way to deal with them is to sue them. If all the European banks that bought CDO which failed were to sue the ratings agencies for damages the entire industry would collapse. Which might not be a bad thing. Then any new players would have to make sure that their ratings were sound. There are many investors who are restricted to buy only the top investment rated bonds. These may not necessarily be the wisest investor and they may want secure stable returns. They rely on the ratings agencies to provide accurate ratings. If the ratings agencies could be sued for a AAA rated investment collapsing within three years of the rating then the agency would need to get adequate insurance to cover those potential liabilities. If they downgraded to one slightly lower then the investment would have to last two years without any trouble in order for the agency to be safe from litigation. There should also be minimum periods for downgrades, so if a bond was to be re rated at a lower rate then it must stay at that rate for two weeks to allow customers to exit the market. There should be none of this rapid dropping of ratings without warnings.