_"Safe" banks and the reliability of ratings - Jan 28/2012 « on: Saturday at 05:38:03 PM »
Further to my comments in The GET Team Roundtable discussion about banks
(see the cc from Wed, Jan 25 - LINK
Here is some info to help people understand what to look for in a safe bank, one example of a list of safe banks, and some articles about the reliability of ratings. There are other lists of safe banks, but this list highlights some points that you must understand if you are to management your new wealth soundly.
Remember – just because a source lists a bank or investment as “safe” does not mean that it will not run into trouble. It depends on who the rating agencies were, and what criteria they used to compile the list.
To feel secure about a “safe” bank, you need to look at more than one “safe” list, you need to trust that the ratings agencies were accurate in their assessment, and (most of all) you need to look beyond the “safe” lists and do further investigation.
Read More Link On Right
_ The following info explains what factors Global Finance considered in rating the banks on their “safe” list. To balance the perspective, it also outlines a controversy involving the accuracy of the ratings agencies, who placed AAA ratings on mortgage investments that later turned into the subprime mortgage crisis. (This is why it is best NOT to rely on information from only a single source. LOL )
ONE EXAMPLE OF A “SAFE” BANKS LIST
Here is the Global Finance 2011 list of the “World’s 50 Safest Banks”. (This is the detailed description and charts, not the summary article that previously circulated through dinar world).
This list looks at the top 500 biggest banks in the world (based on assets), and then calculates their ranking by averaging the ratings given by three of the ratings agencies – Fitch, Standard & Poors, and Moody’s. (So you would need to trust the judgment of these three agencies to trust this list.)
Global Finance provides a detailed explanation of how they rate “safe” banks. They explain what kinds of banks are not included in the assessment, and why certain types of banks show up at the top.
(For example, many high-scoring European banks are government owned and connected to municipal authorities, so their activities are low risk.)
The charts show the credit ratings by each of the three ratings agencies, and include Regional lists as well as the World list.
Here is the Global Finance “safe” banks link: LINK
Here are the websites for Fitch, Standard & Poors, and Moody’s, if you want to investigate these agencies further:
Fitch - http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp
Moody’s - http://www.moodys.com/
Standard & Poors - http://www.standardandpoors.com/home/en/us
HOW MUCH CAN YOU TRUST THE DATA
Here is an example of why you need to dig deeper regarding all financial info, and why you should never assume that articles or documents or any kind give you the whole picture. (And yes, that goes for all articles and docs in dinar world as well! LOL )
This controversy involves Standard and Poors – they gave AAA ratings to the mortgage debt that became the subprime mortgage crisis.
The argument is that this influenced investment, and thus had a role in the crisis. This may or may not affect their ratings on these banks. You will have to judge for yourself.
Here are two articles. The first by Huffington Post, Canada, quotes the New York Times:
http://www.huffingtonpost.com/2011/08/18/standard-poors-investigation-mortgage-ratings_n_930237.html ::::: Huffington Post | 08/18/11 | WASHINGTON -- LINK
The Justice Department is investigating whether the Standard & Poor's credit ratings agency improperly rated dozens of mortgage securities in the years leading up to the financial crisis…..
According to people with knowledge of the interviews, the Justice Department has been asking about instances in which the company's analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S&P business managers…
it was unclear whether the Justice Department investigation involves the other two major ratings agencies, Moody's and Fitch, or only S&P….
Here is an article from the New York Times, about a month later:
http://www.nytimes.com/2011/09/27/business/sec-weighs-action-against-standard-poors.html?_r=1&scp=9&sq=S%26P&st=nyt ::::: LINK
New York Time | September 26, 2011 | Standard & Poor’s … is under investigation for a complex mortgage security that was issued in 2007 just as the housing market began to collapse…
If the investigation leads to a case against S.& P., it would be the first federal case against a ratings company for its work evaluating the mortgage securities that toppled the nation’s financial system… many ill-fated mortgage securities called collateralized debt obligations or CDO’s… represented bundles of mortgage bonds which were themselves bundles of home loans.
The securities were supposed to be diversified so that if some homeowners stopped paying their bills, other loans inside the securities would be unlikely to default at the same time. But many of those … defaulted at the same time…
Standard & Poor’s and other rating agencies were not the architects of deals … but the AAA ratings they placed on parts of those deals were critical to the banks’ abilities to sell them to investors.
S.& P. and other agencies made record profits placing ratings on mortgage securities… but they did not provide any sort of promises to investors that their ratings were accurate….
You can glean useful info from the analyses and ratings of banks, other financial institutions, and investments. But what you need to bear in mind is that no person or agency is always right. You need to research widely and then draw balanced conclusions. I hope the info provided above helps you get started in that.
Have a good weekend! GO RV!!! :)