User:Nick Gardner /Sandbox

http://v3.moodys.com/researchandratings/methodology/003006001/rating-methodologies/methodology/003006001/4294966628/4294966848/0/0/-/0/rr Moodys rating methodologies

Where a company issues fixed income securities to be traded on a public market, the issuer may ask a CRA to provide a credit rating for those securities to make them more marketable. In many cases, potential investors may expect an issuer or security to be covered by several CRAs. Investors also may operate under guidelines or legal requirements that prohibit the investor from holding a debt security that is not rated at or above a certain level by one or more CRAs Credit rating agencies provide a third party rating based on access to more information about the borrower than a lender may be able to access, and on accumulated experience in evaluating credit.

ratings serve as a regulatory tool in financial market oversight – one speaks of ‘rating-based regulation’. This is often called the certification function. In this view, rating agencies not only assign a credit evaluation but they also issue a ‘license’ to access the capital markets or to lower regulatory burdens (Partnoy 1999, pp. 683-88). lowers the risk premium required by the investors

there is evidence that all types of rating announcements – outlooks, reviews and rating changes, whether positive or negative – have a significant impact on CDS prices. The Credit Rating Industry: Competition and Regulation Inauguraldissertation zur Erlangung des Doktorgrades der Wirtschafts- und Sozialwissenschaftlichen Fakultät der Universität zu Köln 2007 vorgelegt http://papers.ssrn.com/sol3/papers.cfm?abstract_id=991821

Statement by Lawrence J. White* for the “Roundtable to Examine Oversight of Credit Rating Agencies” U.S. Securities and Exchange Commission Washington, DC April 15, 2009 [1] (Statements about history)

[2] How and Why Credit Rating Agencies are Not Like Other Gatekeepers Frank Partnoy University of San Diego School of Law "Credit rating agencies are not widely respected among sophisticated market participants," Since 1973 credit ratings have been incorporated into hundreds of rules, releases, and regulatory decisions, in various substantive areas including securities, pension, banking, real estate, and insurance regulation

FINANCIAL GATEKEEPERS: CAN THEY PROTECT INVESTORS?, Yasuyuki Fuchita, Robert E. Litan, eds., Brookings Institution Press and the Nomura Institute of Capital Markets Research, 2006 San Diego Legal Studies Paper No. 07-46

The Paradox of Credit Ratings Frank Partnoy U San Diego Law & Econ Research Paper No. 20 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=285162 Numerous academic studies show that ratings changes lag the market and that the market anticipates ratings changes.3 The rejoinder to these studies – that ratings are correlated with actual default experience – is misplaced and inadequate, because ratings can be both correlated with default and have little informational value. Accordingly, such correlation proves nothing. Indeed, it would be surprising to find that ratings – regardless of their informational value – were not correlated with default

There are two superpowers in the world today in my opinion. There’s the

United States and there’s Moody’s Bond Rating Service. The United States can destroy you by dropping bombs, and Moody’s can destroy you by downgrading your bonds. And believe me, it's not clear sometimes who's more powerful. (Thomas L. Friedman, in an interview ith Jim Lehrer on Newshour, PBS television, Feb. 13, 1996).