The credit rating agencies; if not the biggest, one of the biggest empowered systemic risks of my times.
The hardest part when warning and having a small voice, is when those you most need should heed it, since they’re the ones who can most loudly voice it, or do something about it, have themselves kept silence on it, or caused the dangers you warn about.
On the margin of the risk weighted bank capital/equity requirements, there, where it most counts for the final bank credit allocation decisions, the systemic risk of the undue influence assigned to the credit rating agencies, is still well alive and kicking.
It would seem that the regulators thought the credit rating agencies possessed some extraterrestrial sensorial abilities that other humans did not. One must be truly desperate for safety to believe such nonsense.
Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friends, please consider that the world is tough enough as it is.
Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market
Let us not forget that the need for assets to be qualified as more or less risky is exactly the reason why the credit rating agencies were so much empowered that now we also have the credit rating agencies bias risk, which already helped to create the sub-prime mortgages debacle.
It would seem that the regulators thought the credit rating agencies possessed some extraterrestrial sensorial abilities that other humans did not. One must be truly desperate for safety to believe such nonsense.
Basel Committee, imposed on the banks capital requirements based on perceived risks and specifically referring to the risks already reflected in the ratings. The product is a hallucinogen, a bankers’ LSD. It increases the banker’s sensitivity to risk: he sees good credit ratings in much brighter lights; not-so-good ratings seem far scarier.
PS. In 2023, two decades later, here I am dialoguing with #AI #OpenAI #ChatGPT about it.
Posts
