Opinion
Rating Agencies Still Matter — And That Is Inexcusable
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Market assessments of risk, such as sovereign yield spreads and credit default swaps, react fast (and often overreact) — but these are not systematic mechanisms for uncovering hidden risks and avoiding crisis.
By Nouriel Roubini
No one said setting up an early warning system for a global financial storm was easy. Among those blamed for failing to spot the 2008 subprime crisis are senior politicians, the world’s biggest banks and several supranational institutions.
However, with the US Federal Reserve and Bank of England likely to raise interest rates, China’s growth slowing and commodity prices falling, we need an effective way to spot the gathering clouds now as much as ever. For many, that means turning to credit rating agencies — despite the fact that they failed to detect signs of crisis on the horizon in the last decade.
Credit rating agencies matter. These private companies assess the ability of debtors, including countries, to repay. Because regulators often defer to their assessments of the risk inherent in holding a particular asset, they in effect dictate what investors can invest in, and how much.
Read full article as published in Financial Times
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Nouriel Roubini is a Professor of Economics and International Business and the Robert Stansky Research Faculty Fellow.
However, with the US Federal Reserve and Bank of England likely to raise interest rates, China’s growth slowing and commodity prices falling, we need an effective way to spot the gathering clouds now as much as ever. For many, that means turning to credit rating agencies — despite the fact that they failed to detect signs of crisis on the horizon in the last decade.
Credit rating agencies matter. These private companies assess the ability of debtors, including countries, to repay. Because regulators often defer to their assessments of the risk inherent in holding a particular asset, they in effect dictate what investors can invest in, and how much.
Read full article as published in Financial Times
___
Nouriel Roubini is a Professor of Economics and International Business and the Robert Stansky Research Faculty Fellow.