Experts: Rating Agencies Need to be Smarter in Evaluating Investments via GlobeSt

Credit ratings are used by investors, issuers, investment banks, governments and broker-dealers. For investors, these rating agencies increase the range of investment alternatives and provide measurements of relative credit risk. But over the years, especially after the 2007-2009 financial crisis, and more recently, ratings downgrades during the European sovereign debt crisis of 2010 and 2011, they have drawn some criticism regarding their role in the financial system.

Rich Walter, president of Faris Lee Investments, tells GlobeSt.com that “the rating agencies provide the only way today for investors to rely on the underwriting of a third party to make credit decisions.” Walter says the system is by no means perfect, noting that “credit ratings require a multitude of analysis and don’t necessarily look at future trends in determining these.”

Marcelo Bermúdez, president of Figueroa Capital Group, a subsidiary of Charles Dunn Co., tells GlobeSt.com that ratings agencies are not too dissimilar from the No Child Left Behind Act. Everyone wants an easy rubric to judge whether or not a student is worthy of going on to the next grade, he explains, but “Talk to any teacher and they will roll their eyes when you mention No Child Left Behind. The same goes for bankers when you talk about ratings agencies.”

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