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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.
This is a great insight, thank you.

The brainless should not be in banking -- Willem Buiter
by Migeru (migeru at eurotrib dot com) on Mon Apr 26th, 2010 at 12:28:39 PM EST
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