Credit raters judge risk & value and were given special limited liability privileges because investors and markets crave their expert opinions. Ideally they provide an objective baseline for consistent rating when buying stocks, muni bonds and even collectables – like coins (PCGS) or even guitars. But Moodys and S&P abused their positions at precisely the wrong time – when bond investors needed them most.
So now what? Can the marketplace innovate by encouraging bond buyers to conduct their own research or think creatively about outsourcing that job, instead of reflexively relying on S.& P., Moody’s and Fitch? Are investors willing and able to become more knowledgeable about what, what and why they buy & sell? Hopefully yes, since it will make us all better investors.
The bottom line is that the credit rating industry must be deregulated into a blended solution of legacy and non regulated ratings firms. History clearly shows that markets have the intelligence to predict bad news thru market price based rating systems. For example, to see Market Ratings for any muni bond today go to http://www.bondview.com/marketratings a free analysis tools.