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but at least two Nobel prizes have gone to individuals (Stiglitz and Arrow) involved in proving that objective credit analysis by lenders (or anyone else) is effectively a mathematical impossibility, which means we can't avoid, under any imaginable economic system -- not just markets or capitalism -- providing greater wealth and power to the few individuals that end up capable of compelling others in society of their credibility (and power) to determine the credibility of others.

Rating agencies are just the banker's attempt to solve the inescapable principal-agent problem given conditions of imperfect information (read: incentive to lie, even to yourself) by trying to establish an institutional wall between lenders and risk analysts by outsourcing to a pooled resource.  It makes a lot of sense and is an improvement over what existed before, but it's a problem that has no permanent institutional solution.

by santiago on Mon Apr 26th, 2010 at 12:05:48 PM EST
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