Summary of Alternatives for Issuer-Paid Credit Rating Agencies

Looking for the report?
We have the summary! Get the key insights in just 5 minutes.

Alternatives for Issuer-Paid Credit Rating Agencies summary
Start getting smarter:
or see our plans

Rating

8

Qualities

  • Innovative
  • Analytical

Recommendation

Imagine paying someone to rate you and then expecting their evaluation to be entirely objective. As inane as it sounds, that’s the current setup between issuers and the credit rating agencies that assign those all-important letter grades to structured securities. There ought to be a better way, but – as economist Dion Bongaerts points out in his erudite analysis – alternatives may not be as cost-effective or competitive as the existing issuer-paid system. getAbstract recommends this seminal report to investors, issuers and analysts involved in assessing securities risk.

About the Author

Dion Bongaerts is an associate professor of finance at Erasmus University’s Rotterdam School of Management.

 

Summary

After the 2007–2009 subprime crisis, the effectiveness and objectivity of credit rating agencies (CRAs) such as Standard & Poor’s, Moody’s and Fitch came into question when some highly rated debt securities collapsed, leaving investors with massive losses. According to the International Monetary Fund, investors in structured products such as subprime mortgage-backed securities lost some $3.4 trillion, even though most of the securities carried AAA grades. Had these securities received ratings that correctly reflected their risk, investors might have avoided at least some of these losses. Yet the default of highly rated securities...


More on this topic

Customers who read this summary also read

Why Wall Street Matters
7
Too Smart for Our Own Good
8
Who’s Afraid of Budget Deficits?
8
What Would Happen If China Started Selling Off Its Treasury Portfolio?
9
Cracking the Emerging Markets Enigma
7
Investment
7

Related Channels

Comment on this summary