Re:Ireland jails three top bankers over 2008 banking meltdown
by jolux on Sunday July 31, 2016 @01:00AM
(#12195805)
The ratings agencies also have a direct conflict of interest in how they rate securities because the bank will go to their competitor if they don't get the rating they want.
Re:Ireland jails three top bankers over 2008 banking meltdown
by sievebrain on Sunday July 31, 2016 @08:55AM
(#12196755)
"their competitor" looks like a typo but is correct. US financial regulation grants a duopoly to the two big ratings agencies: despite their utter failure in 2008 and despite the low barriers to entry, no new competitors have emerged to challenge them because of that.
-Rating agencies set criteria for marking things BB, BBB, etc.
-Banks noticed that those criteria did not perfectly correlate with credit risk and created products that optimized for ratings rather than low risk.
-People bought these products based on the rating, and then got blown up.
You should take this with several grams of salt; I don't know if it's actually true.