Re: The differences between 1929 and Today
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Yes. Conceptually, I have always had a problem with the financial ratings system. Basically, the ratings system exists to encourage people to buy financial instruments. Naturally, they are only going to say things that will make those instruments look attractive. It's kind of an incentive to fudge things. Shades of Enron.
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one thing to add here is that the ratings agencies were suspect when yields on a AAA rated CDOs were higher than similarly rated securities. but the excess liquidity forced investment into these since it was so attractive and so cheap to borrow.
one thing that wasn't aken into acct by ratings agencies was liquidity premium and other trading type considerations. these certainly affect the yield on securities and the market saw things that ratings agencies didn't.
Barron
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