Tuesday, 2 July 2013

S&P Condemned By Australian Court - Can Ratings Continue Being an Opinion?


The Telegraph informs in an article on November 24-th, 2012 of a landmark ruling against a Credit Rating Agency, S&P, whereby: 
"Standard & Poor's misled investors by giving its highest rating to derivatives that lost almost all their value in the run-up to the 2008 global economic crisis"

Citing the article: "S&P's rating of AAA of the Rembrandt 2006-2 and 2006-3 CPDO notes was misleading and deceptive and involved the publication of information or statements false in material particulars and otherwise involved negligent mispresentations to the class of potential investors in Australia," Justice Jagot said.

It is important to remark that with Ontonix's on-line Resilience Rating™ system such practice is simply impossible:
our system is available on the internet, the algorithm cannot be manipulated, there is no human-in-the-loop, anyone can check the results

There are two fundamental points to make at this stage.

1. It makes little sense to subject rating agencies to (more) scrutiny in an attempt to regulate the process of rating and make it more transparent. The techniques that rating agencies use are outdated and do not function in a turbulent economy. Making the process transparent will not change the substance.
2. Given what is at stake - people's savings, jobs, retirements, etc. - ratings cannot continue to be an opinion. They must become a science. When a doctor tells you your cholesterol is 200, it is not an opinion.