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February 04, 2015 at 11:03 AM
Having intelligence, a great education, good manners and good shoes are great, but they do nothing to control fate.
Paying chief executive officers $100 million per year may make directors feel as if they have done something about the wretched dice of chance, but, hey, at some point, it doesn’t matter what the CEOs make. The dice roll and heads roll.
Similarly, bond rating analysts may have actuarial credentials, graduate degrees from top universities, and super computers registered with the NSA. But, at some point, it doesn’t matter how many degrees analysts have from Harvard, MIT and the Sorbonne. At some point, the dice roll.
So, to me, the idea that credit rating agencies can reliably predict which companies will default on their obligations in extreme conditions has always seemed absurd.
But, on the other hand, the rating agencies do get armies of intelligent, educated people to look hard at debt issuers, make sure the issuers really exist, and come up with reasonable predictions about how markets and issuers might perform.
They apparently suffered from conflicts of interest when they were looking at mortgage-backed securities in the late 1990s and early 2000s, and they may have been overly kind when assigning ratings, but they also issued reports that gave readers data and analytical tools the readers could use to think hard about how stable the mortgage-backed securities market really was.
