Jim Chanos - on Rating agencies and Credit default swaps

7 Aug 2011 Bloomberg
I have to agree with Mr Chanos on the impotency of the rating agencies. But to come down on the side of Credit default swaps as being accurate market instruments is debatable!


"S&P came out with its unilateral downgrade. They seemed to make more than a rookie mistake by missing X Trillion dollars from its forecast [by excluding military expenditures]. Look, there aren't any triple A's out there. The rating agencies got us here by failing to see problem in 2007. Now it turns the tables on the government itself. The irony is not lost.
The marketplace every minute of every day is talking to itself and saying where are we pricing this risk. Chile has a credit default spread lower than France. France is a triple A credit. The market is saying Chile is a better credit than France. So all along during the real estate crisis going back to Enron and prior to that the CDS market did a better job than the rating agencies. Ratings are basically there for legal reasons, for institutional reasons, but real market players look at CDS not ratings."

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