Municipal Bond Forum
Reliability of rating agencies
Q
This is not a rhetorical question: Why should anyone believe the ratings agencies – the same fools who rated pure baloney as “AAA” before the crash?
A
James A. Klotz responds:
In his article, More Cities Earn S&P ‘AAA’ Credit Rating, Dr. Abrams is merely reporting that these rating changes occurred. He does not suggest that because a bond is “AAA” rated, it should be taken as the last word on its quality. Clearly, you have drawn your own conclusions as to their merit.
We should point out, however, that historically, underlying ratings of municipal bonds have proven to be consistently reliable, particularly when compared with the ratings on the mortgage-backed securities to which we assume you refer.
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