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CChaos on 16 October 2012
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the2real4mafol said:
CChaos said:

Their existence is mostly for the sake of informing investors and lenders, after looking at all angles of a business, whether or not a corporation or business has some amount of risk in the investment and allowing them to compensate by way of increasing interest payments and what not. They exist as a method of scale for investors, basically.

However, it should be noted that it takes internal screw ups before credit ratings start falling. In Sony's case, they've been in the red on their TV business for eight straight years, they have no products at present or announced that are going to give them a real burst of energy into profitability and they having been slowly accruing a great deal of debt over the past ten years in comparison to their assets, amongst other things. Sort of the same reason the US got a credit downgrade by S&P because of their huge national debt and political paralysis or Greece and their multitude of long standing issues.

What it really amounts to is a judgment on 'Are you good for it?' when it comes to money. Equality would be for a perfect world, but in the eyes of the financial system, we're only as good as how good we are at keeping ourselves afloat.

Thanks for clarifying. But how credible are these credit companies anyway? When China has it own rating company called Dagong

http://en.wikipedia.org/wiki/Dagong_Global_Credit_Rating

Who are based on the same rating scale as S&P, but give each company a different rating.

Dagong gave the USA an A, while S&P give them an AA+, I don't understand how that can be different between each rating company

No problem for the clarification! Far as I can tell, they're pretty credible because they use visible statistical analysis of movements by corporations and countries to make their judgments. In essence, they crunch the numbers and make decisions based off of those, as well as future prospects. However, reaction to said numbers varies depending on the individuals in each credit agency.

DaGong is an odd one. While the States and Europe has the Big Three, DaGong is a ratings agency based out of Beijing and is more or less used by the Chinese for the sake of its own ratings by economists and what not there. It's not recognized by the Securities and Exchange Commission (the US based investment and regulating group). It basically stands separate from the Big Three and other ratings agencies, but holds weight because it is basically China's rating agency and you can't really ignore that, considering China's place as the second largest economy and a growing power.