The Crux of the Matter: Ratings and Credit Risk Valuation at the heart of the Structured Finance Crisis
AbstractThe 2007/2008 global credit crisis was born out of opaque securitization transactions. Introducing structured products risk estimation techniques shows how the most basic investment analysis could not be done without detailed and updated knowledge on the assets of the pool. Access to such details was crucial for investors to perform an autonomous valuation, the lack of which led to a pervading acceptance of ratings at face value. The crisis brought numerous delusions to naïve users of these privately issued opinions. Coming back to the central role that investor played during the previous speculative episode and introducing a theoretical discussion on the dynamics of market finance, it is shown that trusting market discipline and due diligence was bound to end up being misguiding. Given that unprecedented rating volatility brought a share of the blame game to rating firms, strategies that would aim at securing an informed use of ratings are finally outlined.
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Bibliographic InfoPaper provided by University of Paris West - Nanterre la Défense, EconomiX in its series EconomiX Working Papers with number 2009-3.
Length: 23 pages
Date of creation: 2009
Date of revision:
financial crisis; credit risk; rating agencies;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G29 - Financial Economics - - Financial Institutions and Services - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-03-07 (All new papers)
- NEP-RMG-2009-03-07 (Risk Management)
- NEP-URE-2009-03-07 (Urban & Real Estate Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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