With the seemingly swift onset of the sub-prime mortgage meltdown in the United States, one has to wonder exactly what the true value of debt/credit rating agencies such as DBRS (Dominion Bond Rating Service), Moody’s, Standard and Poor’s, etc. actually is…
If they are experts at analyzing debt, why did the sub-prime mess come straight out of left field? I suspect the REAL answers will never truly be revealed. Invariably the whole ordeal will be dragged down to the old "he said, she said" between Wall Street and the debt rating agencies – some fines, some new regulations and a few heads rolling to appease investors.
But perhaps it is nonetheless time to look at the debt rating agencies in more detail. You might be surprised at some of these facts:
Based on pre-tax margins…
1. Moody’s made more money than Microsoft or GOOGLE in the past 5 years.
2. Moody’s was the third most profitable company IN THE ENTIRE S&P 500 FOR THE LAST 5 YEARS
3. Investors used to pay for subscriptions to ratings from debt rating agencies. Now, debt ISSUERS pay a fee to the rating agencies – if you could sell this structure as a drink at Starbucks it might be known as a "grande conflicto".
So, they make a PILE of money and they couldn’t do what they were supposed to – and this has rattled some cages on Wall Street.
But, here is one more interesting tidbit: Do you know who the number 1 shareholder of Moody’s is?
Berkshire Hathaway (aka Warren Buffett)!