As we begin to address regulatory reform in the financial services industry there is a clear consensus view that the credit rating agencies played a role in fomenting the crisis environment.
In February 2007, Joe Mason and I presented a paper warning of the risks that CDO market problems would present in the capital markets and in the real economy. “How Resilient Are Mortgage Backed Securities to Collateralized Debt Obligation Market Disruptions?” http://www.hudson.org/files/publications/Mason_RosnerFeb15Event.pdf
In May 2007, we presented a follow-up paper more specifically detailing the role the rating agencies played. “How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions”. http://www.hudson.org/files/publications/Hudson_Mortgage_Paper5_3_07.pdf
My recently authored “Toward an Understanding: NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts”
appears as the lead article in the current issue of the Journal of Structured Finance. In the article I detail the fundamental flaws in the NRSROs rating of structured securities, why those problems are unique to structured securities (as distinct from single issuer debt e.g. corporate, municipal, sovereign) and why the problem is not solved by changing the “issuer pays” model nor using “market based” ratings. Instead I present a series of non-invasive recommendations that would resolve most of the problems in the ratings of structured securities. Such a resolution is fundamental to a revival of the ABS market and resumption of securitization activity on a sustainable and responsible basis.
I urge you to read the paper and would be more than happy to discuss it or respond to any questions you may have.
NRSRO Failings in Structured Ratings and Discreet Recommendations to Address Agency Conflicts
Winter 2009 Volume14,Number 3
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