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An Assessment of the Credit Rating Agencies
Report

An Assessment of the Credit Rating Agencies

Background, Analysis, and Policy

Lawrence J. White
Mercatus Center, 2013
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Editorial Rating

7

Qualities

  • Analytical
  • Background

Recommendation

Stern School of Business professor Lawrence J. White outlines the history of credit rating agencies (CRAs) and traces related federal legislation from the establishment of the Securities and Exchange Commission in 1930 onward. White contends that intertwining bond ratings with “regulatory reliance” has been disruptive and that CRAs meet no current market need. His paper, issued by the conservative Mercatus Center at George Mason University, says improved models could foster competition. White’s contrarian views on the drawbacks of the present regulatory environment carry weight, but likely would not win approval from reigning experts. getAbstract believes that bondholders and traders who are interested in an out-of-the-box analysis from the right-hand side of the economic-thought spectrum will find this an intriguing, contrary read – as will others who wonder what happened to real estate values in the first decade of the 21st century.

Take-Aways

  • Regulatory laws increasingly intertwine with the work of credit rating agencies (CRAs).
  • In the late ’60s and early ’70s, the bond industry changed from the “investor-pays” model to the bond “issuer-pays” model.
  • Housing prices rose roughly 125% beginning in 1997, and people believed they “would always go up.”

About the Author

Lawrence J. White, a writer and researcher in applied microeconomics, financial regulation and international banking, is a professor at the Stern School of Business.

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