Overdependence on Credit Ratings Was a Primary Cause of the Crisis
AbstractThe first part of the paper describes how over time credit rating agencies ceased to play the role of information intermediaries. Rating agencies did not provide information about the risk associated with the securitized instruments, but they simply enabled structurers to create and maintain tranches of these instruments with unjustifiably high credit ratings. The second part of the paper suggests how future policy may minimize overdependence on credit ratings, by removing regulatory licences and by implementing shock-therapy mechanisms to wean investors simple rating mnemonics.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.27.
Date of creation: May 2009
Date of revision:
Rating Agencies; Subprime Mortgages; Securitization;
Find related papers by JEL classification:
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-FMK-2009-07-28 (Financial Markets)
- NEP-PKE-2009-07-28 (Post Keynesian Economics)
- NEP-RMG-2009-07-28 (Risk Management)
- NEP-URE-2009-07-28 (Urban & Real Estate Economics)
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- Aggelos KOTIOS & George GALANOS & Spyros ROUKANAS, 2012. "The Rating Agencies In The International Political Economy," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(1), pages 3-15.
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