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The author argues that AAA debt is dangerous because it breeds complacency because it is considered risk-free. It strikes me that this is begging the question o
by JamisonM 15y ago
The author argues that AAA debt is dangerous because it breeds complacency because it is considered risk-free. It strikes me that this is begging the question of how all these debt instruments can carry the same grade and do so so consistently. Is it not the case that AAA debt is dangerous because most of it is probably not really AAA?
I thought we established a long time ago that the ratings system is broken, this is just another symptom of that illness that no one is willing to even try to cure.
- tptacek 15y agoThat's his point. There is no conceivable way that even a large fraction of that debt is AAA. What instead appears to be happening is a vicious circle: * The finance industry engineers new ways to massage riskier debt into AAA products * The market eagerly devours all the new AAA debt, building new business models and expanding previous ones based on the increased availability of risk-free products, thus * Sparking demand for more AAA debt.