The Western ones at least have proven to be more or less objective.
I'm sorry but that simply isn't true, Standard & Poor's, one of the worlds most renowned rating agencies has been seriously challenged in court on 2 different occasions in 2 different countries because of their unreliability, as well as their blatant favoritism towards hedge-funds and derivative speculators alike.
Standard & Poor's appeals landmark ruling in favour of NSW local councils
One of the world's biggest credit ratings agencies and a European investment bank will begin an appeal in the Federal Court in Sydney today to try and overturn a landmark ruling that they misled local councils.
In late 2012, the court ruled that 13 New South Wales councils were deceived because Standard & Poor's gave complex investments a AAA credit rating, the highest investment ranking.
The councils lost most of their money when the product, a Constant Proportion Debt Obligation (CPDO), plunged in value during the global financial crisis.
The judge, Justice Jayne Jagot, granted them nearly $30 million in compensation.
S&P, ABN AMRO, the European bank which created the investments, and Local Government Financial Services, which sold the product to the councils, are appealing the judgment to the Full Court of the Federal Court.
S&P told the ABC in a statement that it is not responsible for investment decisions and investors need to do their own analysis.
"It is bad policy to enforce a legal duty against a party like S&P, which has no relationship with investors who use rating opinions, yet impose no responsibility on those investors to conduct their own due diligence," the statement read.
"It turns S&P's predictions about the future into guarantees."
Standard & Poor's decision to give the investments a AAA or gold star investment ranking was criticised by Justine Jagot in November 2012.
The judge found S&P made negligent misrepresentations and had misled the councils.
It was the first court ruling of its kind worldwide against a credit ratings agency.
Justice Jagot said a description of the CPDOs as "grotesquely complicated" was accurate.
ABN AMRO and Local Government Financial Services (LGFS) were also found to have behaved in a misleading and deceptive way.
LGFS also was found to have breached its fiduciary duty to the councils.
Litigation funder John Walker, from Bentham IMF, financed the case for 12 of the councils.
He says CPDOs were high risk but were marketed as being as safe.
"It turned out to be very risky. It was simply a bet," he said
Council says any overturn would have significant impact
Bathurst Regional Council was awarded more than $1 million in compensation by the court.
It originally got just $67,043 of its $1 million investment back.
Bathurst Regional Council Mayor Gary Rush says council spending plans will be affected if the judgment is overturned.
"Having to pay that money back would have a significant impact," he said.
"It would mean we have to curtail some of the maintenance opportunities or the development of infrastructure opportunities we are currently looking at."
CPDOs were created by ABN AMRO in 2006 and were described as the "poster child for the excesses of financial engineering" by researchers from the United States Federal Reserve.
In court documents, an ABN AMRO banker described the product as being like a casino.
"If you win you start again. If you lose, double your bet. Repeat. You have a great chance of winning (99.9 per cent) 1 pound, but a chance of losing the lot (0.10 per cent) if you lose 11 times in a row," ABN AMRO's David Poet wrote in an email.
The investments tracked corporate debt but as companies defaulted on their loans during the global financial crisis, the value of the notes was all but wiped out.
Justice Jagot found S&P rating analysts were "sandbagged" by ABN AMRO into awarding the top investment ranking to the product to make it more appealing to investors.
Court documents show S&P debated whether the CPDO was worth a AAA rating.
"You are the wuss for bending over in front of bankers and taking it... you rate something AAA, when it is really A-? You proud of that little mistake?" wrote Sebastian Venus to Derek Ding in May 2007.
Standard & Poor's is also being sued by 90 local councils, churches and charities for rating toxic mortgage bonds sold by the collapsed investment bank, Lehman Brothers, as AAA.
Also in the United States:
A $5 Billion U.S. Fraud Case Against Standard & Poor's Enters Critical Phase
Thrilling depositions. Sounds like an oxymoron, right? Not when it comes to civil fraud lawsuits.
The U.S. Department of Justice has scheduled depositions in its potential landmark suit against rating agency Standard & Poor’s (MHFI). The suit, pending in federal court in California, offers one of the last, best hopes for a full accounting of how the major rating companies allegedly inflated their evaluations of mortgage-backed securities in the runup to the 2008 financial crisis. S&P has admitted that its ratings were woefully inaccurate but has denied it committed fraud or any other wrongdoing.
Whether the feds can prove the purposeful deception needed to clinch a fraud case—and billions of dollars in damages—will turn on whether government lawyers can get current and former S&P analysts to concede that they knew they were rubber-stamping doomed securities as worthy of AAA ratings. The venue for this showdown will be not the open courtroom but the bland conference rooms in which depositions occur. This case, you see, is unlikely ever to result in a full-dress trial. Instead, once the opposing sides see what the Justice Department can come up with in depositions, a settlement will probably ensue. So depositions are really the main event.
“As many as nine current and former employees of McGraw Hill Financial Inc.’s Standard & Poor’s unit may be questioned by U.S. Justice Department lawyers as part of a fraud lawsuit against the ratings company. The government has scheduled depositions of six current collateralized-debt obligation analysts, according to a status report filed in federal court in Santa Ana, California. The U.S. is also scheduling depositions of another employee and two ex-employees, according to the joint filing. New York-based S&P has yet to schedule its own depositions. …
“The Justice Department last year accused S&P of lying about its ratings being free of conflicts of interest and may seek as much as $5 billion civil penalties. S&P has said it will seek evidence that the lawsuit was political retribution by the government because S&P was the only rating company to downgrade U.S. debt in 2011.
“The company is scheduled to seek to compel the U.S. to hand over internal documents about its decision to sue S&P and not Moody’s Corp. (MCO), which S&P says gave the same ratings as the company did for residential mortgage-backed securities and CDOs backed by those securities. A hearing is scheduled for March.”
All this bears close attention by anyone concerned about the continuing centrality of rating agencies on Wall Street and in the economy at large.