Don't Blame Rating Agencies

Vickie Tillman of S&P wrote a long letter to editor in the Asia Wall Street Journal explaining why S&P has done nothing wrong in the recent subprime debacle despite her CEO being replaced at the same time. Wait, if nothing has gone wrong, why is your CEO being replaced? We all know people don't really leave their job for "personal reasons" and that it is an euphemism for being fired. For those who want to be in the corporate PR business, this is a piece of article to learn from. Two rows long filled with explanations which added up to nothing. Aside from some lame arguments on how S&P has done its job, it smells like a lot of bullshit. Yup, I guess someone has to do it. You can't really let your reputation be dragged through mud and someone has to defend their "reputation" and cover their corporate "behind". As Vickie Tillman correctly points out, reputation is the greatest asset of the rating agencies and her article is clearly an attempt to salvage it. Next time, how about being accurate in your analysis instead of firing your CEO and then "repairing" your reputation?

On the big picture, I do see serious issues with the business model of credit rating agencies. Everyone will tell you that they care about their reputation. And that is the case until rubber hits the road and you are tempted by the possibility of more revenue like the possibility of rating large numbers of CDO structure. I doubt there are many businesses who can withstand these temptations purely on the basis of maintaining their reputation. Only way that companies will do their job here is if their feet is being held to the fire. Why would the credit rating agencies need to do a good job when they can be in the wrong and simply write a lame puff piece in the Journal?