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View Diary: Here's an Idea: an Inaccuracy Tax on the Ratings Agencies (14 comments)

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  •  What do you consider accurate? (3+ / 0-)
    Recommended by:
    burrow owl, VClib, Justanothernyer

    If an agency rates a security Aa2 (I'm going to use the Moody's ratings for convenience) and it is an organization that is in bad shape that bearly makes payments is that success? What if they are rated Aa1 but some people think they are more like Aa2, what then? What if they rate it Ba3 (speculative grade) and it makes payments as scheduled, is that inaccurate?

    •  It could be based on what the statistics claim to (2+ / 0-)
      Recommended by:
      burrow owl, Justanothernyer

      bear out and what actually happens.  For example, let's say AAA bonds are supposed to only default 10 out of every million times (I'm just making that up for the example, I don;t know what the real stats are.)  So, in the million-bond issuance rolling average, if the default number hits 11, the tax will be imposed until the number goes to 10 or below in the rolling 2-year average.  The SEC could write the details of defining accuracte.  

      "All my soldiers in the field I will wish you safe return/ but only love kills war, when will they learn" ~Jay-Z

      by Roatti on Tue Jun 29, 2010 at 04:23:26 PM PDT

      [ Parent ]

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