Obviously, in hindsight, and even just with sound investment management practices, no one should make an investment solely based on a rating. Nonetheless, that is how virtually all funds are set up to some extent ("Investment Grade" fund, "AAA" portfolio, you see it over and over).
On the other hand, the new methodology has a little bit of the Fox watching the henhouse feel to it, despite being implemented by PIMCO. They're already using it for RMBS, and they're looking at moving it to CMBS.
In an exclusive interview with Life & Pensions, Kermitt Brooks, first deputy insurance superintendant (sic) for New York State Insurance Department, speaking on behalf of the NAIC, said that after evaluating the performance of its new agency-independent capital requirement regime for residential mortgage-backed securities (RMBSs), the regulators would consider expanding the methodology to other structured securities.
"The NRSROs did a good job on single-name securities like corporate bonds, but not on structured products. Let's see how the new approach with RMBSs works – if it does, we will consider whether we want to expand into other structured products, like CMBSs."
On a side note, hopefully this will hasten the demise of the rating agencies...
p.s.s. another win for PIMCO. After TCW's epic fail this week, customer's who are fleeing TCW will naturally be attracted to PIMCO. Despite outperforming PIMCO time and time again, PIMCO carries much better brand recognition as a fixed income powerhouse.