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April 15, 2008
Quality Assessors as Paradigmatic Rational Actors
by Jerry Ravetz
A brief supplement to my last post, from: ‘Ratings game: As housing boomed, Moody’s opened up’, by Aaron Lucchetti, Wall Street Journal - Europe, April 14, 2008, pp. 16-17.
Bond issuers, knowing that a higher rating means they pay a lower interest rate, have an incentive to shop around among rating agencies. And they have clout as they shop: They are the ones paying the bill...
…“There never was an explicit directive to subordinate quality rating to market share,” says Mark Froeba, a former Moody’s analyst who recently started a bond valuation company that may compete with rating firms. “There was, rather, a palpable erosion of institutional support for rating analysis that threatened market share.” An example would be raising too many legal issues on deals, slowing them down unnecessarily.
Posted by Jerry Ravetz at April 15, 2008 8:08 AM
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