STREET DOGS

The ratings agencies remind me of the department of motor vehicles in that they are understaffed and don’t pay enough to attract the best and the brightest. The market perceives the ratings agencies to be doing much more than they actually do. The agencies … don’t directly misinform the market, but they don’t disabuse the market of perceptions … that the agencies do more than they actually do. This creates a false sense of security and in times of stress this actually makes the problems worse. [In 2008] had the credit ratings agencies been doing a reasonable job of disciplining the investment banks – who unfortunately happen to bring the ratings agencies lots of other business – then the banks may have been prevented from taking excess risk and the crisis might have been averted. — David Einhorn

The problem posed by creditratings agencies lies not so much in their alleged malpractice or negligence, but in the sheer impossibility of rating creditworthiness in the first place. It’s a problem that derives from the difference between quantifying risk and predicting uncertainty. Credit-ratings agencies aren’t bad at doing the former; at calculating the statistical likelihood of, say, more than 5% of homeowners defaulting on their mortgage. But they’re arguably bad at doing the latter; at predicting the unpredictable, or anything that can’t be included within a statistic: the possibility, for example, that vast swaths of the banking industry might, through sheer stupidity, have handed out mortgages to people who couldn’t possibly pay them back. — Patrick Kingsley

Although receiving an investment-grade rating continues to be an important and gating item, the ratings agencies have become less relevant and credible than before. — Goldman Sachs