Yep 9 different credit ratings per security would do it!
Sir Roman Frydman, Michael Goldberg and Edmund Phelps tell us that “We must not rely solely on the rosiest ratings” October 20, and that “No single individual or institution can render a definitive judgment on the riskiness of securities. Friedrich Hayek showed that only markets can aggregate knowledge that is not given to anyone in its totality”, which is of course absolutely right.
But then they tell us “Rating agencies and issuers of securities have to help the market perform this function” and in order to do so “when assessing an asset, agencies should be required to report at least two ratings and the methodology used to arrive at each: one assuming that historical patterns will continue and at least one other assuming the reversals in the trends of major variables” which is of course totally incongruous with their first statement.
Unless their idea is to have the credit rating agencies reporting so many scenarios that they dilute themselves in a sea of irrelevance… Yes, that is an idea on how to get rid of the credit rating agencies without having to tell them so. Let us ask for nine scenarios covering the range between an AAA and a Caa2!
But then they tell us “Rating agencies and issuers of securities have to help the market perform this function” and in order to do so “when assessing an asset, agencies should be required to report at least two ratings and the methodology used to arrive at each: one assuming that historical patterns will continue and at least one other assuming the reversals in the trends of major variables” which is of course totally incongruous with their first statement.
Unless their idea is to have the credit rating agencies reporting so many scenarios that they dilute themselves in a sea of irrelevance… Yes, that is an idea on how to get rid of the credit rating agencies without having to tell them so. Let us ask for nine scenarios covering the range between an AAA and a Caa2!
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