Posted on 05/05/2010 6:02:30 AM PDT by mlocher
NEW YORK (Reuters) - The big rating agencies are no longer very useful to investment companies such as PIMCO, which can be faster to anticipate shifts in credit quality of debt, said the bond fund management company on Wednesday.
The credit rating agencies "no longer serve a valid purpose for investment companies free of regulatory mandates," wrote Pacific Investment Management Co.'s managing director Bill Gross in a May Investment Outlook on the company's Web site
I am not entirely sure what is behind this statement, but apparently there is a regulation that some credit ratings agencies have to follow. PIMCO must be free of those regulations. Interesting.
Perhaps the politicians are pressuring the ratings companies to inflate the value of government bonds?
When ratings agencies get paid more money for higher valuations, you know their opinions can be subjective.
That and perhaps the threat of an IRS audit, may make their ratings suspect?
Okay. i know a little. The real issue is they were grading pretty standard debt until maybe the mid 90’s. Corporate bonds,maybe equipment trust certificates,munis,you get the idea. Suddenly there was an explosion of structures which were very difficult to grade. Now you have to view this in context as well. The guys creating the structures were being paid a whole lot more than the guys rating the paper. Essentially they were operating on another level. Time went by and you see the results with the housing market. Was there some quid pro quid for grades? Maybe but at the end of the day the real question was could the agencies even figure the various cdo’s and such out. Now there are all these analysts working for various institutions that are more than capable of evaluating debt which makes the agencies somewhat superfluous. In all honesty if you’re an investor in a fund at this point in time you want them doing their own work and not relying on the agencies.
I am pretty sure all munis need to be rated. Certain classes of buyers have to have investment grade paper either by percentage or in totality. There is a need as the rules are written today but if the playing field was level and all investment houses were free of regulation then there would be no need. That being said,would you want an insurance company only buying Greek and Venezuela sovereign debt?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.