Overdependence on Credit Ratings was a Primary Cause of the Crisis

25 Pages Posted: 29 Jun 2009

See all articles by Frank Partnoy

Frank Partnoy

University of California, Berkeley - School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: June 29, 2009

Abstract

The first part of the paper describes how over time credit rating agencies ceased to play the role of information intermediaries. Rating agencies did not provide information about the risk associated with the securitized instruments, but they simply enabled structurers to create and maintain tranches of these instruments with unjustifiably high credit ratings.

The second part of the paper suggests how future policy may minimize overdependence on credit ratings, by removing regulatory licences and by implementing shock-therapy mechanisms to wean investors simple rating mnemonics.

Keywords: Rating Agencies, Subprime Mortgages, Securitization

JEL Classification: G24

Suggested Citation

Partnoy, Frank, Overdependence on Credit Ratings was a Primary Cause of the Crisis (June 29, 2009). FEEM Working Paper No. 27.2009. Available at SSRN: https://ssrn.com/abstract=1427167 or http://dx.doi.org/10.2139/ssrn.1427167

Frank Partnoy (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

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