If you think you can invent an algorithm that produces a more accurate picture of default risks on various types of assets, then I'm sure the world will beat a path to your door. Until then, this is the best we have.
Whatever about inventing a better algorithm, it's clear that the ratings agencies didn't do any kind of due diligence before slapping AAA ratings on junk mortgage securities...they were afraid of losing business from the investment banks! They should have been the ones telling the banks what was what.
Those in the know would describe the ratings agencies as "brain-dead", the lowest on the totem pole on Wall Street...traders who made money would game the credit ratings scores so S&P and Moods would rate the junk they were peddling AAA. A modern form of alchemy - turning junk into investment gold.
For a nice, easy-to-read account of those who made a fortune from the mortgage market collapse that tells you how exactly the ratings agencies were played for fools: The Big Short, by Michael Lewis (of Liar's Poker fame)
