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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.
And without proper regulation and oversight they might be encouraged to do so.
Hypothetically.
And how in gods name can they short a non-securitised loan they have issued themselves? Peak oil is not an energy crisis. It is a liquid fuel crisis.
Becuase they can short and/or insure their own loans if the insurance and/or short is in danger of becoming more profitable than the potential loan loss.
This, however, requires that the sucker who is on the other end of the deal hasn't done his risk analysis properly.
Which really speaks more to the need for keeping widows and orphans out of the capital markets than to any need to rein in the capital markets' tendencies to separate suckers from their money. Because the former is possible - the latter may very well not be.
- Jake Friends come and go. Enemies accumulate.
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