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In what way do AAA-rated products "breed ... regulatory arbitrage." What does that mean?
by glhaynes 15y ago
In what way do AAA-rated products "breed ... regulatory arbitrage." What does that mean?
- rgraham 15y agoSee tptacek on this thread: http://news.ycombinator.com/item?id=2768921 http://news.ycombinator.com/item?id=2768921 A lot of regulation tells big often state-based institutional investors like retirement plans and university funds that they have to invest X% in AAA rated investments. Demand for AAA rated products creates not just financial wizardry that spawns more AAA products from riskier products, but the increasingly powerful finance industry/lobbyists pressure government officials (usually appointed representatives from the finance industry) to make this easier...if not transparent.
- samstokes 15y agoI assumed it meant something like a corporation using regulatory loopholes to get their bonds rated as risk-free (and thus desirable to own) when they would more accurately have been rated risky. Put more simply, borrowing money more cheaply than their creditworthiness should allow. His point was about the prevalence of AAA-rated products, not their existence.