From Bloomberg:

-

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.