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Poor and Moody. The Credit Rating Agencies and the Subprime Mess. The CRA: Mystical . “The rating agencies are somewhat of a mystically anointed monopoly, not unlike our good friends Fannie and Freddie, but with even less accountability.” ( Baker 2005 ). The CRA: Omniscient.
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Poor and Moody The Credit Rating Agencies and the Subprime Mess
The CRA: Mystical • “The rating agencies are somewhat of a mystically anointed monopoly, not unlike our good friends Fannie and Freddie, but with even less accountability.”(Baker 2005) Mark Carl Rom
The CRA: Omniscient • “Everyone assumed the credit agencies knew what they were doing.” (Mason 2008) Mark Carl Rom
The CRA: Powerful Mark Carl Rom “You could almost say that we live again in a two-superpower world. There is the U.S. and there is Moody's. The U.S. can destroy a country by leveling it with bombs; Moody's can destroy a country by downgrading its bonds.” (Friedman 1995)
US Mortgage Markets Mark Carl Rom
Two Main Questions • What was the role of the CRA in the subprime mess? • What should be done? Mark Carl Rom
Today • The basics • The mess • The mistakes • The reforms Mark Carl Rom
What do the CRA do? Mark Carl Rom
How do the CRA do it? Mark Carl Rom
The CRA and the Mortgage Markets Mark Carl Rom
The Mess Mark Carl Rom
The Mess Mark Carl Rom
The Mistakes, I $ Mark Carl Rom
Incentives Mark Carl Rom
The Mistakes, II ? Mark Carl Rom
Ignorance Mark Carl Rom
The Mistakes, III Mark Carl Rom
Stress Mark Carl Rom
Stress Mark Carl Rom
The Remedies • Incentives • Manage, not eliminate • Ignorance • Clarify, not prevent • Stress • Report…but moot Mark Carl Rom