Enron Criticism
Student’s Name
Institutional Affiliation
Enron Criticism
Introduction
Currently, credit ratings (CRA) have the role of influencing the credit ratings of bonds and impacting investors’ confidence. According to Cite, the credit rating agencies have sensitive power to determine if an organization is worth capitalizing in or not by ratings. More so, the credit ratings check organizations, states, financial products, banks, and determine their ability to pay loans and invest by rating them on a sliding scale. As a result of the power conferred on the CRA, I firmly agree with the criticism against them towards being slow to downgrade ratings on Enron’s debt.
Primarily, the CRA role is rating bond issuer‘s performance through assigned ratings. For this reason, there the states, people as well as other organizations believe that CRA ratings are reliable. Mainly, this belief is maintained because through the power vested, people have limitless as well as unrestricted access to CRAs information concerning bond issuers, which assisted in the ratings. Overall, due to power vested on CRA, individuals view that its ratings are reliable.
Besides, there is a slow reaction in downgrading Enron’s debt status by the CRAs. Mainly, this is concluded from the rate as well as the time when activities of Enron unfolded. Therefore, there has been a sharp drop in the share price, the resignation of the chief finance officer. In addition, there has been failed amalgamation among Enron with Dynegy. Thus, the slow reaction by CRAs in downgrading Enron’s debt status adversely impacted share price.
Regardless of the analyzed actions and data, Enron was still rated as an investment grade. The rate on Enron continued a few days to the company’s bankruptcy. For this reason, it can be summed up that CRAs criticism is right to a large extent due to various reasons such as lack of CRAs accountability, compromised ratings, and failure of Dynegy and Enron to merge. I firmly believe that the criticism is right.