Investors losing trust in Moody's and S&P?


Anyone who hasn't been cozily sleeping under a rock for the last month is well aware of the recent string of hedge fund blowups and poor performance in the CDO (Collateral Debt Obligation) space attributable to the implosion of the subprime mortgage space. While it is certainly the fault of the fund managers for becoming involved in such a speculative space due to mouthwatering potential returns, there's also an understated culprit: the ratings agencies.

Ratings agencies essentially determine the riskiness of a given fixed income instrument and, as the name implies, give the security a rating. For example, the theory goes, a C-rated bond is more risky than an A-rated bond. But as Bloomberg has recently reported, these agencies are losing credibility, especially in the credit derivative space.

For example, the article references CPDO funds. Basically these are funds that sell credit default swaps. Credit default swaps are insurance policies on a given fixed income security defaulting. While the ratings agencies have been rating these funds very well (meaning they consider them to be conservative/safe), these funds have dropped 19%-33%. For a product rated AAA (lowest risk) this type of volatility is ridiculous.

Those cited in Bloomberg aren't the only ones who are growing skeptical of the ratings agencies. In fact, when the Chairman of Bear Stearns (NYSE: BSC) was forced to explain two of the company-owned hedge funds 'blowing up' he partially attributed it to poor performance from highly-rated securities.
Symbol Lookup
IndexesChangePrice
DJIA-89.2312,801.23
NASDAQ-23.352,903.88
S&P 500-9.311,342.64

Last updated: February 13, 2012: 04:29 AM

Hot Stocks

General Electric

18.875-0.255(-1.33)

Alcoa

10.29-0.35(-3.29)

Apple Inc

493.42+0.25(+0.05)

Google Inc 'A'

605.91-5.55(-0.91)

Bank of America

8.07-0.11(-1.34)

Wal-Mart Stores

61.90-0.06(-0.10)

Exxon Mobil Corp

83.80-1.08(-1.27)

Ford

12.44-0.25(-1.97)

Citigroup

32.925-0.735(-2.18)

IBM

192.42-0.71(-0.37)

Yahoo

16.14+0.14(+0.88)

Starbucks

48.82-0.38(-0.77)

Microsoft

30.495-0.275(-0.89)

Home Depot

45.33+0.06(+0.13)

DailyFinance Headlines

Benzinga Headlines

TheFlyOnTheWall.com Headlines

    BioHealth Investor Headlines

    WalletPop Headlines

    DailyFinance BlackBerry App

    My Portfolios

    Track your stocks here!

    Find out why more people track their portfolios on AOL Money & Finance then anywhere else.

    BloggingStocks Partners

    More from AOL Money & Finance

    BioHealth Investor Headlines

    Page Loaded in 1329125385191 ms.