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The rating agencies gave AAA rating to a ton of junk mortgage-based securities before 2008, largely contributing to a global financial crisis. This is literally

The rating agencies gave AAA rating to a ton of junk mortgage-based securities before 2008, largely contributing to a global financial crisis. This is literally the biggest screwup imaginable in their area of business. And yet, all of them are still doing fine. How is that possible is really beyond me.

redis_mlc 6y ago
Because the rating agency is paid by the paperholder. Even worse, those rating agencies must, by law, be used by those paperholders. So it's a massive conflict of interest, though little different than companies paying the big accounting agencies that are auditing them. But it gets much, much worse ... If a board member of a large company or government agency tries to independently hire an auditor for a review of said company, the auditor will refuse - because they will not be hired by the company for future work, and also other companies or agencies. And the 1,000 or so US-listed Chinese companies to date have not been required to show any books to the SEC, let alone the "real" set of books. All should be delisted, and the CALPERS CFO, a CCP member, should be replaced. (The rabbit hole here goes very deep, as the $2 trillion Belt and Road appears to be secretly funded by US exchange listings and unpaid US bonds.)
AlexTWithBeard 6y ago
This is possible, because we don't have another set of rating agencies. Will have to learn from mistakes and fix what we have.
- burntoutfire 6y ago
  Or maybe, we can accept that we don't have good means for measuring risk, and just limit the financialisation of the economy... It would be a good thing long-term - the smaller the house of cards build by Wall Street, the less damage they do to everyone when they fall.
  - AlexTWithBeard 6y ago
    How can you limit "financialization" without at least some risk measure?
    - burntoutfire 6y ago
      If you keep financial instruments simple (e.g. basic bonds), then risk is easier to measure.

redis_mlc 6y ago

Because the rating agency is paid by the paperholder. Even worse, those rating agencies must, by law, be used by those paperholders. So it's a massive conflict of interest, though little different than companies paying the big accounting agencies that are auditing them. But it gets much, much worse ... If a board member of a large company or government agency tries to independently hire an auditor for a review of said company, the auditor will refuse - because they will not be hired by the company for future work, and also other companies or agencies. And the 1,000 or so US-listed Chinese companies to date have not been required to show any books to the SEC, let alone the "real" set of books. All should be delisted, and the CALPERS CFO, a CCP member, should be replaced. (The rabbit hole here goes very deep, as the $2 trillion Belt and Road appears to be secretly funded by US exchange listings and unpaid US bonds.)

AlexTWithBeard 6y ago

This is possible, because we don't have another set of rating agencies. Will have to learn from mistakes and fix what we have.

burntoutfire 6y ago
Or maybe, we can accept that we don't have good means for measuring risk, and just limit the financialisation of the economy... It would be a good thing long-term - the smaller the house of cards build by Wall Street, the less damage they do to everyone when they fall.
- AlexTWithBeard 6y ago
  How can you limit "financialization" without at least some risk measure?
  - burntoutfire 6y ago
    If you keep financial instruments simple (e.g. basic bonds), then risk is easier to measure.