Overdependence on Credit Ratings Was a Primary Cause of the Crisis

Frank Partnoy
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Frank Partnoy: University of San Diego School of Law

No 2009.27, Working Papers from Fondazione Eni Enrico Mattei

Abstract: The 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.

Keywords: Rating Agencies; Subprime Mortgages; Securitization (search for similar items in EconPapers)
JEL-codes: G24 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-fmk, nep-pke, nep-rmg and nep-ure
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2009.27

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