Wednesday, July 21, 2010

Is change coming?

I had written about two industries, computer software and credit rating agencies in the previous article in September 2009. I had argued that both the industries are providing a service/product which is very important for other industries but both of them do not want to take any liability of the service they are providing.

The game, at least for the rating agencies, seems to be changing. The Dodd-Frank Financial Regulation Bill makes the credit-rating agencies liable for the advice they give and it will be easier to sue them if the bond does not perform up to the stated rating. It took almost 100 years to make the rating agencies accountable for their service.

The shares of Moody's have fallen by more than 70% from top in 2007. Even Buffett admitted he should have sold more shares of Moody's earlier. The Indian stock market seem to be unaware of the consequences since CRISIL and ICRA stocks are making new highs. Is market wrong here?

Since the computer software industry is new, I guess it will take 50 more years for them to become accountable.
The analyst must pay respectful attention to the judgement of the market place and to the enterprises which it strongly favours, but he must retain an independent and critical viewpoint. Nor should he hesitate to condemn the popular and espouse the unpopular when reasons sufficiently weighty and convincing are at hand. - Benjamin Graham
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