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View Diary: The results of deregulation: Enron, The California energy crisis, high oil prices, economic collapse (13 comments)

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  •  Don't forget the bond rating industry (5+ / 0-)
    Recommended by:
    kurt, yella dawg, geomoo, maggiejean, DrFitz

    The financial effect of different grades is enormous.  Higher rated bonds are more valuable, so the people who rate bonds have a lot of power.  We now suspect some were corrupt.

    The ratings companies used to be paid by those who bought bonds.  Not any more.  Now the people who sell bonds pay the ratings companies, and they all want higher ratings.  Since there are several large ratings companies, those who sell bonds can shop around for ratings.  Guess what happened?  Crappy stuff got better ratings than they deserved, but the ratings companies who falsely rated these securties made a lot of money.

    I'm just a consumer and don't pretend to understand all the details, but this is how I see it.  Experts?    

    Is 11 dimension chess really just magical thinking?

    by Zinman on Sat Apr 24, 2010 at 02:24:57 PM PDT

    •  I've been trying to find an anwer: (0+ / 0-)

      I've been trying to find an answer to this, for the same experts you ask:

      Why won't any of the bond companies, or even some upstart give me a numerical-based risk assessment?

      I want to know that a bond has a .05% chance of default in the next 10 years, for instance.

      If a ratings company did that, we could simply look back and see how accurate they were.

      I know that they have financial reasons not to do that, but the raw risk number is the only thing that I want, and only thing that will make me trust the ratings agencies.

      It is curious to see the periodical disuse and perishing of means and machinery, which were introduced with loud laudation a few years or centuries before. -RWE

      by Gravedugger on Sat Apr 24, 2010 at 02:48:00 PM PDT

      [ Parent ]

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