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The Courage to Innovate

This analysis explores the limitations of traditional credit ratings and their effects on investment portfolios. With a focus on the issuer-pays model that has contributed to reliability issues in credit assessments, we review critical studies from industry and government that highlight the shortcomings of agencies like S&P and Moody's. Drawing from notable financial crises and academic research, we shed light on the risks posed by reliance on possibly outdated ratings, especially in the current market landscape.

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The Courage to Innovate

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  1. The Courage to Innovate

  2. Rating Agencies, Indexes and Your Portfolio Your portfolio is built on stale and unreliable credit ratings Even your S&P 500 index fund S&P and Moody’s use issuer pay business model

  3. What We Hear “I hate S&P! Those guys are crooks! Have you read ‘The Big Short’?” -Premier Wealth Manager

  4. Government Studies • Financial Crisis Inquiry Commission • Senate Permanent Committee on Investigations: Credit Ratings • SEC Credit Ratings Firms Summary Report - 2008

  5. Academic and Industry Studies • CFA Institute • “Issuer Pays Ratings Model and Ratings Inflation • “Does the Bond Market Want Informative Credit Ratings?” • “Does Regulatory Certification Affect Information Content of Credit Ratings?” • “Credit Rating Firms Have Historically Been Harder on Sovereign Debt Than Corporate Debt”

  6. Lehman Brothers - 2008 Lehman Files for Bankruptcy September 14th 2008

  7. Lehman Brothers - 2008 AAA AA+ AA AA- A+ A BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC C D 5/28/08 9/23/08

  8. Credit Rating Age Indexes

  9. Number of Companies in Average

  10. Questions?

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