Question

Instructions: Your response should be no more than 2 pages.

There is a debate on conflicts of interest that exist between certain bond ratings agencies, such as Moody’s and Standard & Poor’s, and the corporation’s bonds that they rate.

There is also a debate on conflicts of interest that exist between financial firms, such as Goldman Sachs and J.P. Morgan, and the corporation’s equity that they rate.

1. Briefly describe the conflict of interest for each.
2. Contrast between these two conflicts of interest.
3. Discuss strategies that could potentially reduce the bond rating conflict of interest.
4. Discuss strategies that could potentially reduce the equity rating conflict of interest.

Answer 1

Conflicts of interest occurs when an entity or individual becomes unreliable because of cash between personal interest and professional duties or responsibilities. Such a conflict occurs when a company or person has a vested such as money, status, which puts into question whether their actions, judgment, decision- making can be unbiased.

Bond ratings are representations of the creditworthiness of corporate or government bonds.

S&P control almost 95% of the market share of the bond rating business. Each rating agency uses it's own grading system. However, all rating systems classify parts.

Moody's uses a long standing culture of credit rating agencies contributed substantially to the sub-prime mortgage crisis by giving their highest rating(AAA)