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CRAs are a scam from top to bottom. A bank makes a lot of money, but in theory, it's doing an important job which benefits society. That job is independently a

CRAs are a scam from top to bottom. A bank makes a lot of money, but in theory, it's doing an important job which benefits society. That job is independently assessing creditworthiness. Of course, it's hard to assess creditworthiness if you don't know if someone is making a lot of loans at different places. So, there needs to be a system for credit monitoring. But credit monitoring is not credit rating. Credit rating is the one job a bank is supposed to do. Letting someone else do it undermines the whole purposes of the independent financial system. We might as well just dissolve the banks and move to a centralized planned economy if that's what we're doing, so that at least the centralized rating agencies will be democratically controlled. So, to begin with, CRAs shouldn't exist and undermine the basic purpose of the financial system. On top of that, they are incredibly incompetent and corrupt as seen by the Equifax breach. It was clear in the early 2000s that the old system in which people would present a few pieces of relatively obscure personal identity to open a line of credit was no longer workable because the data was now subject to trivial duplication. Instead of fixing this, the industry created the concept of "identity theft" in order to falsely shift blame onto an unrelated third party. I "had my identity stolen" a few years ago. The event had nothing to do with me, so all of the language around this is wrong. What actually happened was first a criminal learned some information about me, then Verizon chose to give the criminal a line of credit on a cellphone, then the CRAs reported that I was profligate to anyone who asked. Saying "my identity" was stolen makes it seem like I was somehow a party to any of this. "My identity" is not a property of mine; it is a property of the reliability of the CRAs' data. What actually happened was the CRAs had their data polluted by the combination of a criminal and lax identity checking at Verizon, and then the various guilty parties forced me to do their data cleanup for them. What should have happened in the mid-00s was that the credit monitoring agencies, created systems where you can prove your identity to a notary public and get some sort of signed certificate gizmo that you can use to get a cellphone or make a car loan. But because the whole US financial system is corrupt, it instead outsourced all of the liability onto consumers.

yowlingcat 7y ago
Agreed. The whole idea of "identity theft" stinks of PR lubrication. Your identity cannot be stolen, but "identity theft" is a clever, cynical sleight of hand that obscures what really happened: credit fraud, specifically fraud that is the responsibility of the party issuing credit and the criminal propagating it.
- cortesoft 7y ago
  I agree with this idea in principle, but I am unsure of how it would work in practice. Say you open a credit card, then try to say it wasn't you..... what would a bank need to do to prove it was you? The things they would provide are already the things they have... your signature, your information, etc. What EXTRA bit would they start collecting that would prevent fraud? Currently, banks ARE on the hook for fraud.... if you dispute fraudulent credit opened on your behalf, they have to eat the cost. I don't quite see what the difference would be in this alternative world... currently, someone applies for credit, the credit issuer decides it is legit, and issues the credit. That would still be the same. Say it was fraudulent; the fraudster doesn't pay it off, so the issuer tries to collect... at that point, you say "hey, I didn't open this credit!" Well, the issuer is going to say "yes you did, here is the information I have saying it was you"... how would that be different in your alternative world? Maybe you would require more verification steps... but what? Picture of you holding a sign saying you signed up for the credit? Video? What could you possibly provide that couldn't be faked for fraud? What could the issuer require? At this point, things are no different than now. The issuer says it was you, you say it wasn't, and then someone has to arbitrate and decide who was correct. I guess I just don't see how we can do it better (although I would LOVE to do it better!)
  - JackRabbitSlim 7y ago
    The issuer and arbitrator are, if not the same entity outright, are so far in bed together they should be common-law spouses. Let me explain one of 2 possible outcomes based on socioeconomic factors. A) you have money to keep a lawyer on it; No problem. B) you don't have money for a lawyer; Tough shit. Nothing beyond real unilateral enforcement of the system already in place is required.
  - earthboundkid 7y ago
    It has been done better in other countries and could be done better in the US if there were political will to do it. There's a whole universe of cryptographically signed certificates that we in the US don't use. The hard part is not signing a cert; it's making sure the certs are given to the correct people and having a procedure for when a cert is lost. Estonia has done this well; Korea has done this poorly. But it's quite doable if you have political will for it.
briandear 7y ago
> We might as well just dissolve the banks and move to a centralized planned economy if that's what we're doing, so that at least the centralized rating agencies will be democratically controlled. In the history of central planned economies, never have they been “democratically controlled.” Despite the name, places like the Democratic Peoples Republic of Where-ever are never democratic nor are they republics. > because the whole US financial system is corrupt Is that actually true or just hyperbole?
- lisper 7y ago
  It's actually true. If you don't believe me, go try to start a bank. Here's a handy link to get you started: https://www.federalreserve.gov/faqs/banking_12779.htm https://www.federalreserve.gov/faqs/banking_12779.htm
  - cameron_b 7y ago
    How does your link support your assertion of corruption?
    - lisper 7y ago
      The link doesn't. The experience you will have if you actually go try to start a bank will. I only provided the link to point you to the entrance of the rabbit hole.
      - Symmetry 7y ago
        I don't see how the fact that the process of becoming a bank is strictly regulated means that it's corrupt?
        lisper 7y ago
        It doesn't. What makes it corrupt is that banks are not in fact strictly regulated, it only appears that way. But there is no way I can prove that to you in an HN comment. I would have to write a book. I can point you to a lot of circumstantial evidence but there is nothing probative in the public record (see below). The only definitive evidence I have of the corruption in the system is my personal experience, some accounts of which I have published on my blog. But if you don't put credence in my conclusion, then you will likely not put credence in my evidence either, because I can't prove any of it. The only way I can prove it is to invite you to undertake the same journey I did. If you do that, I predict you will learn first-hand the same thing I did: the system is corrupt, and whether or not you succeed in penetrating it will ultimately depend entirely on whether you have the right connections and whether they decide that you can be trusted to toe the line on the unwritten rules, the first of which is that you never talk about the unwritten rules to anyone who is not a member of the club. Note that I never joined the club, so my theory of the unwritten rules is pure speculation. No one ever sat me down and said, "Look, son, this is how it is..." But I did spend ten years of my life on this, and during that time I accumulated a lot of evidence that I have a very hard time explaining in any other way. It eventually led me to a serious existential crisis. BTW, it's not just the financial system. Academia is corrupt in much the same way, and in that case I did join the club so I can speak to that with some authority. That experience is one of the things that allowed me to recognize what I was seeing in the financial industry. But both academia and finance are centuries-old industries. They have become very skilled at hiding their corruption from prying eyes, and a big part of the strategy is making it appear that anyone who accuses them of corruption is a crackpot. (Which is, of course, exactly what a crackpot would say, and that, too, is part of the strategy. It's a horrible catch-22.) So you have to decide whether to believe me or not, whether you think I'm a crackpot or not. Before you jump to a conclusion I invite you to look up my record. My life is pretty well documented on the web.
gwd 7y ago
> What actually happened was first a criminal learned some information about me, then Verizon chose to give the criminal a line of credit on a cellphone, then the CRAs reported that I was profligate to anyone who asked. Saying "my identity" was stolen makes it seem like I was somehow a party to any of this. "My identity" is not a property of mine; it is a property of the reliability of the CRAs' data. What actually happened was the CRAs had their data polluted by the combination of a criminal and lax identity checking at Verizon, and then the various guilty parties forced me to do their data cleanup for them. Right -- and really, that should be some class of negligent libel on behalf of the CRAs.
causalmodels 7y ago
> Letting someone else do it undermines the whole purposes of the independent financial system. Even small regional banks have their own internal credit rating algorithms. Credit ratings from CRAs are generally consumed either in aggregates (a buyer on the secondary markets wants a traunch with an average credit rating of X) or by less sophisticated parties such as landlords.

yowlingcat 7y ago

Agreed. The whole idea of "identity theft" stinks of PR lubrication. Your identity cannot be stolen, but "identity theft" is a clever, cynical sleight of hand that obscures what really happened: credit fraud, specifically fraud that is the responsibility of the party issuing credit and the criminal propagating it.

cortesoft 7y ago
I agree with this idea in principle, but I am unsure of how it would work in practice. Say you open a credit card, then try to say it wasn't you..... what would a bank need to do to prove it was you? The things they would provide are already the things they have... your signature, your information, etc. What EXTRA bit would they start collecting that would prevent fraud? Currently, banks ARE on the hook for fraud.... if you dispute fraudulent credit opened on your behalf, they have to eat the cost. I don't quite see what the difference would be in this alternative world... currently, someone applies for credit, the credit issuer decides it is legit, and issues the credit. That would still be the same. Say it was fraudulent; the fraudster doesn't pay it off, so the issuer tries to collect... at that point, you say "hey, I didn't open this credit!" Well, the issuer is going to say "yes you did, here is the information I have saying it was you"... how would that be different in your alternative world? Maybe you would require more verification steps... but what? Picture of you holding a sign saying you signed up for the credit? Video? What could you possibly provide that couldn't be faked for fraud? What could the issuer require? At this point, things are no different than now. The issuer says it was you, you say it wasn't, and then someone has to arbitrate and decide who was correct. I guess I just don't see how we can do it better (although I would LOVE to do it better!)
- JackRabbitSlim 7y ago
  The issuer and arbitrator are, if not the same entity outright, are so far in bed together they should be common-law spouses. Let me explain one of 2 possible outcomes based on socioeconomic factors. A) you have money to keep a lawyer on it; No problem. B) you don't have money for a lawyer; Tough shit. Nothing beyond real unilateral enforcement of the system already in place is required.
- earthboundkid 7y ago
  It has been done better in other countries and could be done better in the US if there were political will to do it. There's a whole universe of cryptographically signed certificates that we in the US don't use. The hard part is not signing a cert; it's making sure the certs are given to the correct people and having a procedure for when a cert is lost. Estonia has done this well; Korea has done this poorly. But it's quite doable if you have political will for it.

briandear 7y ago

> We might as well just dissolve the banks and move to a centralized planned economy if that's what we're doing, so that at least the centralized rating agencies will be democratically controlled. In the history of central planned economies, never have they been “democratically controlled.” Despite the name, places like the Democratic Peoples Republic of Where-ever are never democratic nor are they republics. > because the whole US financial system is corrupt Is that actually true or just hyperbole?

lisper 7y ago
It's actually true. If you don't believe me, go try to start a bank. Here's a handy link to get you started: https://www.federalreserve.gov/faqs/banking_12779.htm https://www.federalreserve.gov/faqs/banking_12779.htm
- cameron_b 7y ago
  How does your link support your assertion of corruption?
  - lisper 7y ago
    The link doesn't. The experience you will have if you actually go try to start a bank will. I only provided the link to point you to the entrance of the rabbit hole.
    - Symmetry 7y ago
      I don't see how the fact that the process of becoming a bank is strictly regulated means that it's corrupt?
      - lisper 7y ago
        It doesn't. What makes it corrupt is that banks are not in fact strictly regulated, it only appears that way. But there is no way I can prove that to you in an HN comment. I would have to write a book. I can point you to a lot of circumstantial evidence but there is nothing probative in the public record (see below). The only definitive evidence I have of the corruption in the system is my personal experience, some accounts of which I have published on my blog. But if you don't put credence in my conclusion, then you will likely not put credence in my evidence either, because I can't prove any of it. The only way I can prove it is to invite you to undertake the same journey I did. If you do that, I predict you will learn first-hand the same thing I did: the system is corrupt, and whether or not you succeed in penetrating it will ultimately depend entirely on whether you have the right connections and whether they decide that you can be trusted to toe the line on the unwritten rules, the first of which is that you never talk about the unwritten rules to anyone who is not a member of the club. Note that I never joined the club, so my theory of the unwritten rules is pure speculation. No one ever sat me down and said, "Look, son, this is how it is..." But I did spend ten years of my life on this, and during that time I accumulated a lot of evidence that I have a very hard time explaining in any other way. It eventually led me to a serious existential crisis. BTW, it's not just the financial system. Academia is corrupt in much the same way, and in that case I did join the club so I can speak to that with some authority. That experience is one of the things that allowed me to recognize what I was seeing in the financial industry. But both academia and finance are centuries-old industries. They have become very skilled at hiding their corruption from prying eyes, and a big part of the strategy is making it appear that anyone who accuses them of corruption is a crackpot. (Which is, of course, exactly what a crackpot would say, and that, too, is part of the strategy. It's a horrible catch-22.) So you have to decide whether to believe me or not, whether you think I'm a crackpot or not. Before you jump to a conclusion I invite you to look up my record. My life is pretty well documented on the web.

gwd 7y ago

> What actually happened was first a criminal learned some information about me, then Verizon chose to give the criminal a line of credit on a cellphone, then the CRAs reported that I was profligate to anyone who asked. Saying "my identity" was stolen makes it seem like I was somehow a party to any of this. "My identity" is not a property of mine; it is a property of the reliability of the CRAs' data. What actually happened was the CRAs had their data polluted by the combination of a criminal and lax identity checking at Verizon, and then the various guilty parties forced me to do their data cleanup for them. Right -- and really, that should be some class of negligent libel on behalf of the CRAs.

causalmodels 7y ago

> Letting someone else do it undermines the whole purposes of the independent financial system. Even small regional banks have their own internal credit rating algorithms. Credit ratings from CRAs are generally consumed either in aggregates (a buyer on the secondary markets wants a traunch with an average credit rating of X) or by less sophisticated parties such as landlords.