Poor Standards

Credit rating agencies have proven very good at predicting the past. Yet they failed to see the 2008 crisis coming, and today they hesitate when assessing the risk of the United States.

Abstract

Standard & Poor’s, Moody’s, and Fitch Ratings are the three largest global credit rating firms. Although China also uses Dagong Global, in practice not a single sheet of fixed-income paper (bonds issued by firms or governments) changes hands without the judgment of one of those first three being involved. In Chile itself, the fate of funds as important as savings held in the AFPs (pension fund administrators), the international reserves of the Central Bank of Chile, or the surpluses that the Ministry of Finance deposits in its sovereign wealth funds depends crucially on these agencies' risk assessments. Continue reading...