Saturday, 1 August 2009

Rating the raters

Kevin Gallagher writes in an excellent piece in the Guardian that credit rating agencies are getting away with little more than a 'slap on the hand'. To summarise:
1. Credit rating agencies have skewed incentives because the owners of financial assets also pay the agencies to rate them
2. The agencies face little competition: three cover three-quarters of all ratings
3. They consistently fail to predict defaults and face no accountability for their lapses
4. Worse, their response in post-crises situations is more questionable, threatening to downgrade any country embarking on an expansionary fiscal or monetary policy.

In the past decade credit rating agencies have failed remarkably on at least three occassions. The question is whether new regulation to govern the financial services industry will monitor and appraise the performance of the raters as well.

1 comment:

Sankt Ingen said...

I guess, the regulators are equally to blame, not for not regulating CRAs but institutionalising their wares to the financial markets and products with no ifs and buts.