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Bonuses, Credit Rating Agencies and the Credit Crunch

Author

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  • Peter Sinclair

    ()

  • Guy Spier
  • Tom Skinner

Abstract

The payment of bonuses can bring big benefits. But harm, too, can result. In the financial sector, this is especially true, above all when they are related to noisy indicators of performance over brief periods. This paper starts by exploring these ideas, then proceeds to examine credit rating agencies and their role in the 2007 credit crunch. It emphasizes the paucity of long term high frequency financial data to quantify tail event risks, the failure to apply analysis of fundamentals in financial and housing markets, and rewards structures to individual players that reinforced myopia as three key components of the crisis.

Suggested Citation

  • Peter Sinclair & Guy Spier & Tom Skinner, 2008. " Bonuses, Credit Rating Agencies and the Credit Crunch," CDMA Conference Paper Series 0805, Centre for Dynamic Macroeconomic Analysis.
  • Handle: RePEc:san:cdmacp:0805
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    File URL: https://www.st-andrews.ac.uk/CDMA/papers/cp0805.pdf
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    More about this item

    Keywords

    bonuses; credit crunch; credit rating agencies.;

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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