August 3, 2011 in Daily Bulletin
It has become popular since the financial crisis to criticize the big 3 credit rating agencies out there: Standard & Poor’s, Moody’s, and Fitch. Yet, no one seems to be doing anything to change the reliance that investors have on them. If they’re really so bad, why do we even keep them around? In an article on Slate, that very question is asked. These three credit rating agencies have become so important since federal regulations on investments often require funds to only purchase bonds and securities above a certain rating to limit their risk. There is now a movement to get rid of all references to these ratings in the regulations. However, many oppose this by pointing out that while these agencies have made mistakes, they at least provide some measure of a bond’s risk. If the agencies were gone, how would investors know whether a bond was any good or not? Everyone would essentially have to do their own research. This seems to be an issue with little consensus, as there seems to be good reasons for both relying on the agencies and ignoring them. In the end, it appears that investors will continue to rely on them as they seem to be the best option in providing a necessary service.