From Bloomberg:
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Einhorn has shorted S&P and Moodies. Some take-aways:
Rating agencies are a “public bad,” not a public good.
We need a systemic change to reject the idea of centralized official ratings.
The market would adjust if we didn’t have them.
On Buffett: “He still made a very nice investment for himself.”
“The brands are ruined.”
The companies may lose their equity in (much-deserved) lawsuits.
Margins during boom reflected compromised objectivity, competing for market share.
Without official ratings the market would adjust to risks itself. Official ratings create an arbitrage opportunity: real credit risk is often higher than ratings imply (look at BP: downgraded by just “1/2 notch or something like that.” Ratings allow sharpies to front-run downgrades or prepare to take advantage of depressed prices following downgrades.
Agencies add little value. Market spreads are a much better indicator of risk.
Yes, although I do not generally agree with Greenlight’s investment style (same for his pal Bill Ackman), I am backing him 200% on these assessments.
PS: Mike, your website has been quite slow for some time from my end, here in London.
Thanks, Pej. I’ve noticed it too — seems like a WordPress plugin is clogging up the pipes. I’ll see what I can do about it.