The job of assessing risk

Some are now blaming the turbulence caused by the subprime crisis on credit-rating agencies, but this reflects a misunderstanding of the work done by agencies and a misrepresentation of the performance of mortgage-backed securities.

Much of the commentary about the cause of the recent market turbulence has missed several critical facts. For example, our recent downgrades affected approximately 1% of the $565.3 billion in first-lien subprime residential mortgage-backed securities RMBS that Standard PoorÆs rated between the fourth quarter of 2005 and the end of 2006. This represents only a small portion of the mortgage-backed securities market, which in turn represents a very small part of the worldÆs credit markets. Additionally, our recent downgrades included...

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