Rating agencies' business is based entirely upon their own credibility. If people stop believing that the agencies triple-A best-in-show rating indicates something real, then no one will attach any value to it. Maybe all the rating agencies are doing it too, but S&P seems intent on completely destroying any remaining credibility it has.
It makes sense why banks are willing to pretend that S&P ratings are meaningful, even if bankers privately know it is all bullshit. They want to be able to hide behind the positive ratings when their risky investments go south to escape responsibility for the loss ("We didn't know mortgage-backed securities were that risky! S&P said it was safe!") But it doesn't make sense why anyone else would believe banks when their defense depends upon their believing an agency with as little credibility as S&P.
In other words, S&P's rating services is just a grift. It is selling credibility when it has little credibility to sell.
It makes sense why banks are willing to pretend that S&P ratings are meaningful, even if bankers privately know it is all bullshit. They want to be able to hide behind the positive ratings when their risky investments go south to escape responsibility for the loss ("We didn't know mortgage-backed securities were that risky! S&P said it was safe!") But it doesn't make sense why anyone else would believe banks when their defense depends upon their believing an agency with as little credibility as S&P.
In other words, S&P's rating services is just a grift. It is selling credibility when it has little credibility to sell.
