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Private investigator wades into murky credit ratings biz

Jules Kroll, who founded and ran Kroll Inc. as a private investigations firm for many years, has started another venture that’s just as interesting: investigating how companies derive credit ratings to issue bonds and raise money on Wall Street. His is among the first of (hopefully) many independent credit ratings agencies that are gaining traction amid the wreckage of the Big Three (Standard & Poor’s, Fitch, Moody’s et al). The Big Three helped perpetuate the housing bubble, the credit-default swaps bubble (and subsequent implosion) by granting Triple-A ratings to

I’ve written quite a bit about indie credit ratings for Barron’s, profiling James Gellert of RiskRatings and how they weigh the challenge of “pay-to-play” (where the company orders up the rating and the ratings agency constructs a conflict of interest) with good research. “The big agencies aren’t going away and people should be more critical about whether they rely on them or not,” Gellert said.  Thus using alternatives too (or instead, as someone may believe appropriate based on quality of product). Even PIMCO’s Bill Gross has weighed in how credit ratings agencies were akin to “tramps” in “hooker heels” when it came to issuing sweet-looking ratings on horrendous borrowers such as Greece.

Anyway, we wish the independents good luck!

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