Don’t Short the Ratings Agencies
July 24th, 2009
James Cullen submits:
This is a long overdue follow-up to a previous post on whether or not the ratings agencies are good candidates to be sold short. CalPERS is suing Moody’s (MCO), S&P, and Fitch, saying that their ratings “proved to be wildly inaccurate and unreasonably high.”
Hindsight is 20/20. Are the ratings agencies legally liable for misjudging the risks to instruments they rated? After all, the lawsuit documents say that CalPERS relied on the “AAA/Aaa” ratings given to the SIVs they purchased. The ratings agencies have the special privilege of a protected franchise, but if CalPERS is truthful that it only invested in SIVs because of the rating, it should have been damn sure that the ratings were appropriate.
