Credit Ratings Agencies: The 19th century’s other “Gangs of New York”
Jan 12th, 2010 | Filed under: Hedge Fund Industry Trends, Today's PostBy: Ranjan Bhaduri, AllAboutAlpha.com Editorial Board & Bijan Warner, AlphaMetrix Alternative Investment Advisors
Credit rating agencies (CRAs) have recently gained attention from the SEC and others due to their possible role in the financial crises of 2008. This attention to CRAs presents an opportunity to reflect on the role of CRAs in capital markets and how they arrive at particular kinds of evaluations of credit and risk. A recent paper by Bruce Carruthers and Barry Cohen of Northwestern University develops a history of CRAs, demonstrating that while credit markets have changed dramatically since the 19th century, many of the constraints faced by CRAs, as well as the complaints and accusations levied against them, have not. More…
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Interesting article, but how are the CRAs like the ‘other gangs of New York’? Is this just a catchy title?
Alas, just a catchy title. Good question though. The point was not that the CRAs are malicious or gang-like in any way. But simply that they were also beginning to compete with each other at around the same era in American history.
Can Singapore’s RMI be any less biased than the CRAs conflicts of interests? Who finances the National University of Singapore’s credit rating project?
Hi Sceptic,
Your question is a good one, and we will find out the answer after it gets established. The National University of Singapore’s RMI gets funding from Singapore governmental bodies and some private foundations; in addition, some of the revenue from other RMI operations goes towards this project. I recently went to the NUS and will state that I was very impressed with it (my visit was not connected to the credit rating project). Most definitely they are committed and have some intelligent folks working in earnest. It is good to see initiative and I am thinking that eventually it will have a positive impact on the capital markets.
Cheers,
Ranjan