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These Guys Missed the Real Estate Crash

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Not much has changed in the bond ratings world. The three major ratings agencies completely missed the real estate crash. And today they operate as if it never happened. Timothy Martin reports here.

Six years after getting a failing grade for their role in the financial crisis, credit-rating firms are at the top of the class.

Riding a global bond boom, the two biggest U.S. firms, Standard & Poor’s Ratings Services and Moody’s Investors Service, MCO +0.25% this month are expected to post record first-quarter profits. Fitch Ratings said in its annual filing this month that 2013 was “one of its best years ever.”

Beyond the spike in bond deals, the resurgence is due largely to the absence of major changes to the industry since the crisis: The business model, in which debt issuers pay for ratings, remains in place; regulations proposed years ago are yet to be implemented; and new competitors have gotten little more than a toehold.

This is despite heated rhetoric from regulators and legislators in the wake of the crisis, in which they castigated the firms for giving elevated ratings to mortgage-related bonds that later soured. The industry’s ability to escape relatively unscathed is in contrast to others, most notably big Wall Street banks, that have been the target of a wave of regulation designed to change behavior that contributed to the meltdown.

“There was a lot of talk, but there wasn’t a lot of action,” said Marc Joffe, a former senior director at Moody’s MCO +0.25% and now principal consultant at Public Sector Credit Solutions in Walnut Creek, Calif., who has been critical over the lack of major changes to the ratings world.

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.