Pimco's Gross: Ratings Agencies Lack Common Sense

Posted May 5th 2010 5:40PM by Joseph Lazzaro
Filed under: Financial Crisis

One of the world's premiere bond fund managers is recommending that investors view credit ratings issued by ratings agencies with a critical and skeptical eye.

Pimco's Bill Gross, in a commentary published on Pimco's website, said ratings agencies are necessary, but their services are overpriced and their evaluations are subject to the influence of the issuer, "which in turn muddles their minds and clouds their judgment to say the least."

Gross cited as recent evidence the ratings agencies' behavior in the housing bubble, calling it a "sordid, nonsensical role that the rating services performed in perpetrating and perpetuating the subprime craze." He added that, "Their warnings were more than tardy when it came to the Enrons and the Worldcoms of ten years past, and most recently their blind faith in sovereign solvency has led to egregious excess in Greece and their southern neighbors."

Economic Analysis: Gross paints a picture of a credit analysis environment devoid of common sense... one in which analysis is influenced by who pays the fee for the analysis/rating. If Congress and other regulatory officials deem that to be the case, then it's time for a federal ratings agency, comprised of civil servants who have no previous relationship with the securities and sovereign debt sectors.

Tags: Bill Gross, bonds, inthenews, Pimco, ratings, ratings agencies