Ask Damiano Brigo how rating agencies work. Lasciate ogni speranza.

For anyone interested in such things I would strongly recommend you to read the bookConfidence Game: How a Hedge Fund Manager Called Wall Street's Bluff, by Christine S. RichardIndeed, on a web site crawling with folks interested in structuring I am simply stunned that there hasn't been any discussion of that book on aside from a brief shout outhttp://www.wilmott.com/messageview.cfm?catid=1 ... =78069Bill Ackman tried to bring greater honesty to the credit rating & bond insurance firms and for his troubles got investigated for potential criminal prosecution, with the investigation petering out for lack of merit.Before aiming for technical improvements in credit rating methodologies, it might be necessary to first clean up the fundamental dishonesty which permeates the leading firms in the industry.To attribute the problems of the credit rating industry to inadequate methodology would be to parrot the the assertions that there was no way anyone could know the credit markets would implode. Several years before the latest credit crisis I would occasionally read in Grant's Interest Rate Observer {GIR<GO>} criticisms about credit quality assumptions underlying various fixed income issuances. I only found out after the implosion that there were others in that camp, such as Bill Ackman, had been less discrete on how he phrased his criticism.And that doesn't even touch upon the inherent dishonesty of credit rating agencies having a tougher rating scale for muni's in order to prop up wider demand for bond insurance.That this angle of the structuring & rating fields has not been discussed more widely on these forums might be interpreted in one of several ways:1) a persistently continuing excessive emphasis upon historical volatility and default rates as a measure of future risk even though everyone knows it is so imperfect.2) the folks here with the greatest knowledge of credit rating imperfections may be subject to confidentiality agreements constraining their ability to talk.3) Nobody who is privy to the details wants to send the gravy train off its tracks (at least not til after they've cashed in).4) They plead the fifth (for good reason).There are many who think of the financial markets as an overglorified casino. Many think of this in a pejorative sense, and some think it in a manner eager to get their piece of the pie. It seems too many people lose sight of the utilitarian purpose which finance is supposed to provide as a social benefit, being as a cash flow tool for managing time disparities between when money comes in vs. going out. It also seems too many people lose sight of the utilitarian purpose which markets are supposed to provide as a social benefit, being as a price discovery tool. The ability to trust one's counterparties increases the efficiency & liquidity & productivity of both finance and markets, with the effect being amplified when you combine both into financial markets. Those amongst us who ignore that requirement for the sake of short term gain are pissing in the communal water well. Others who ignore or look the other way will eventually find their drinking water smells odd. Structuring or rating models pitched as being more sound than rationally justifiable taints anyone complicit in their design or implementation or marketing or distribution.People who disregard such taint may find out too late what brand of roulette they are playing.

QuoteOriginally posted by: kc11415 Structuring or rating models pitched as being more sound than rationally justifiable taints anyone complicit...Individuals in the USA who may be only peripherally complicit in facillitating the dishonesty in structuring & rating might assume that plausible deniability might shield them against criminal charges by offering them reasonable doubt due to them not being aware of the bigger picture. Anyone depending upon plausible deniability might wish to familiarize themselves with the case of 821 F. 2d 844 - United States v. Bank of New England Nahttp://openjurist.org/821/f2d/844/united-states-v-bank-of-new-england-naSeparately, individuals in the USA who may be only peripherally complicit in facillitating the dishonesty in structuring & rating might assume that their specific personal actions might not be sufficient for them to have crossed the threshhold of criminal culpability. Such persons might wish to familiarize themselves withNew York Penal - Article 175 Offenses Involving False Written Statements http://law.onecle.com/new-york/penal/PE ... 75.htmlFor anyone thinking their conduct to not have any Nexus within the jurisdiction of New York State Penal Law, they might wish to study any ISDA Master Agreements which night govern any subset of their structuring or rating activity, particularly the bit which says something like:Quote13. Governing Law and Jurisdiction (b) Jurisdiction. With respect to any suit, action or proceedings relating to this Agreement (?Proceedings?), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. For anyone assuming that the definition of "business records" might be limited to things like "the books" or "accounting records" might wish to familiarize themselves with the case of http://caselaw.findlaw.com/ny-supreme-c ... 514.htmlAs if that weren't enough, there are many jobs in the financial markets which require registration with various SRO's, particularly front office jobs. Some such registrations are published on public web sites and may include criminal prosecutions. So, if you get caught, then any member of John Q Public who is bored enough to pull up your record may have the fact of your criminal prosecution brought to their attention. Even if your employer doesn't do a comprehensive background check, if a customer later retrieves your registration record and complains to your employer about employing such a person, how long do you think it will take to toss you out.As for the defense of "everyone else does it," how well did that work for Raj Rajaratnam?There is a little game called "race to the court house," in which the first persons to reach out to prosecutors and volunteer to be a witness may be able to negotiate an immunity deal in which they escape with a record free from any arrests or indictments or convictions. Please do NOT PM me for with any questions about any of the above. (I will not respond) This post should not be construed as legal advice. If you need clarification on any of the above, you are advised to seek legal counsel from a qualified criminal defense attorney.

Moody's, Fitch and S&P are total bullshit. IMO historically the only rating agency worth a dime is Egan-Jones.

New CR Methodology: "SD" Rating for all EU Countries ruled by Ponzi-Schemers!Madoff is a "child" compared to "godfather'" Ponzi-Schemers in the EU Governments.

Given transition from T bond rate to OIS for practically calculation automatically implies downgrading US bonds otherwise this transition would have no sense. Rating agencies now are more for politicians than for financial needs.Illustration from today 'U.S. debt talks scaled back over tax rift'"The White House needs to secure a deal on deficit reduction to clear the way for an increase in the $14.3 trillion debt ceiling before a deadline of August 2, when the Treasury has warned the United States faces risk of a default. The White House and private economists say a default could push the United States back into recession and trigger global financial chaos"It looks like current Treasury does not comprehend that "secure a deal on deficit reduction " is pull economy to more deeper global politico-financial crisis then it is now.

There is no sense in existing rating methodology if one assumes that debt ceiling will remain on the same height. All letters from AAA to ZZZZ are conditional now on no USA default. All existing concepts admit that conditional ratings coincide with unconditional.

QuoteOriginally posted by: zerdnaMost of the problem disappears if regulation to use rating from a particular company disappears and rating agencies are not government-approved corporations.100% agree. every word about ratings or implying ratings in any regulatory law have to be erased. relying on rating agencies means outsourcing your own credit analysis. on a voluntary basis, ie a business decision of an investor, it might be fine -- it is the investor's choice (and their problem if they fail). the reality is that many investors are forced to rely on ratings agencies by law (or are influenced as other investors have to rely on). investor should conduct their own credit analysis if they lend money to others, and not rely on an rating-based autopilot.it fits to your slogan "Doubt everything. Find your own light." (Gautama Buddha)

In 10 days if there is no agreement then US will default. There are other countries along with a large number of companies will default too. Which methodology reflects such a scenario. Lifting ceiling is just a type of restructuring of the credit event. Whether AAa reflects the situation with USA and what about other companies rating...From my feeling I will sell all stock and bonds until the 2nd of August.