Has Measuring Risk Changed ‘Forever’?

For years, three big agencies assigned risk ratings to thousands of securities, helping investors figure out which were likely to be safe investments and which were more speculative.
But one of those agencies, Moody’s Investors Service, essentially said on Monday: Goodbye to all that.
Financial innovations in recent years — and a concurrent lack of information — has cut the ability to track risk “probably forever,” the agency said on Monday.
“It is extremely unlikely that in today’s markets we will ever know on a timely basis where every risk lies,” analysts at the ratings agency, led by chief international economist Pierre Cailleteau, wrote in a report.
Of course, the agency is one of those faulted for the meltdown in the subprime mortgage market. As securities firms dived headfirst into the origination, packaging and reselling of securities tied to those risky home loans, agencies like Moody’s, Standard & Poor’s and Fitch assigned top ratings to those instruments. But some of them were composed of loans to less creditworthy borrowers, who defaulted.
That upended the entire system of repackaging subprime debt, leading to billions of dollars in write-downs by investment banks and a squeeze in the credit markets.
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