housing prices would always go up....everyone thought so...the banks, the ratings agencies and even the govt., because otherwise a well thought out and prudent legislation would have been in place. The irony is that how such people and organizations with such vast knowledge and experience in finance could think that housing prices would go up forever? That the very concept of a bubble was redundant.... Now Mr. Damodaran what these tycoons of ur country have done is irreparable esp. in terms of the damage that it has caused to the economies that were aping the USA. ..... These economies had lately converted to the open market system.. in the hope that it was the only answer to the questions of hunger and poverty that their economy faced...... After opening up they became outsourcing hubs for the US... most of them couldn't develop their own industries... and their ecopnomies became solely dependent on the performance of the US and the whims and fancies of its policy makers...........Dueto the slowdown it is these countries that have been greatly affected......True the US is worried about its own unemployment problems.... bot what about people who in distant lands work for the US, though not being its citizents,... and earn some amt. of money that is pathetically low to meet basic human necessities....... Instead of being too preoccupied with its own <= 8.5% unemployment rate.....Doesn't it become imperative for the us to do more.......
And now coming back to bond ratings.....it seems much like astrology .... where that astrologer commands respect whose prophecies are more consistent than others..... the very nature of the market should be to encourage more no. of agencies rather than just S & P and Moody's..........In this pool soon will emerge an agency that is consistent and demands the respect of the market.
Another worry area is why change in ratings lag the way markets see things... doesn't it also mean that the ratings are just a reflection of what the market already knows......... Rather it also implies that the kind of insider info that the ratings agencies are supposed to obtain fron the company management.. is not done... and what they get is just rosy news....
And about mortgage backed bonds...the lesser said the better....the very evident lack of info... makes the ratings extremely vulnerable......i would even think that in this particular segment.....ratings are lobbied for and much influenced.........comments Mr. Damodaran
And now coming back to bond ratings.....it seems much like astrology .... where that astrologer commands respect whose prophecies are more consistent than others..... the very nature of the market should be to encourage more no. of agencies rather than just S & P and Moody's..........In this pool soon will emerge an agency that is consistent and demands the respect of the market.
Another worry area is why change in ratings lag the way markets see things... doesn't it also mean that the ratings are just a reflection of what the market already knows......... Rather it also implies that the kind of insider info that the ratings agencies are supposed to obtain fron the company management.. is not done... and what they get is just rosy news....
And about mortgage backed bonds...the lesser said the better....the very evident lack of info... makes the ratings extremely vulnerable......i would even think that in this particular segment.....ratings are lobbied for and much influenced.........comments Mr. Damodaran
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And this is what Mr. Damodaran replied
Aswath Damodaran said...
Sounds to me like selective rationalization. If the market system is to blame for whatever pain has been inflicted in these countries -I presume that you are talking about Asia - then it must have been also to blame for whatever gain was generated in the previous two decades. You know what! Most people would take the trade off. India and China operated for millenniums under your alternate government-controlled (elite run) systems and what did they have to show for it? In two decades, the market system has changed both countries in immense ways. Has all the change been for the better? Of course, not.. But consider the millions of people who have been raised from poverty to the middle class in both countries before you decide the old system worked better.
One more thing.. When you point your finger at the "tycoons" (I presume you are talking about investment bankers here) remember that four fingers are pointing back at you. Anyone who bought a house bought into this vision of everlasting glory as well..
October 18, 2009 7:18 AM
Well you see he does have a point.....