Project for Philosophical Evaluations of the Economy |
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Rating structured finance with Sex in the City
Q&A between Noah denkt™ and its Alter Ego, first drafted on June 12, published on June 15, 2008
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Question by Noah denkt™’s Alter Ego(AE): What’s on Noah denkt™’s mind today?
Answer by Noah denkt™ (Nd): We are currently thinking about the SEC’s investigation into the practices of credit
rating agencies the findings of which were made public yesterday.
AE: Oh, you are referring to the US Securities and Exchange Commissions probe into what caused credit rating
agencies to issue such positive evaluations on a large number of collateral debt obligations when ultimately it
turned out that most of them were not even worth the paper that they were written on?
Nd: Exactly!
AE. And what is it that is nagging you with the respect to this?
Nd: Well, it is the question whether it is at all possible to rate such complex instruments adequately. After all, it
must be terribly difficult to get to the bottom of something that is so collectively bundled.
AE: You mean that these CDOs comprise so many individual loans, contracts, client-bank relationships that it
must be very difficult to review all the necessary date to competently evaluate them?
Nd. Right! After all, it is not only the complexity of the individual CDO that the rating agent has to deal with, no,
apart from that he also has to somehow manage the interdependent chaos that exists in his company. And last no
least there is also the personal chaos that he will surely have to deal with in his own private life.
AE: But shouldn’t these experts be able to isolate their personal from their business chaos and provide a sound
professional judgment in their core field of competence?
Nd: Honestly, we do not believe that any individual is capable of separating the different layers of chaos that he is
involved in. For too interconnected are these different spheres nowadays that you could now still hope to avoid a
spill-over from one into the other.
AE: Could you illustrate that a little more?
Nd: Sure: Take, for instance, the competitive environment that the rating agent’s employer will find himself in.
Surely, this competition alone will create a pressure that won’t be easy to discard for the individual rating agent.
(So, it is likely that he will have to rely on interns and low paid assistants for support work, that he will be faced
with an eternal fluctuation in the staffing of his office, and that he will have to deal with considerable
dissatisfaction on the part of the support workers just for being treated as a second class citizen. If you add to
that the “Sex-in-the.City”-emotional mess that everyone in the office will be caught up in and the eternal career
positioning that they will have do to maintain their her own competitiveness then you have a cocktail that makes it
hard to imagine how a single rating agent will find the space, the tranquility and the equanimity to get to the
bottom of a complex CDO.)
AE: Isn’t that picture a little too dark ?
Nd: Not if you keep in my mind, that even if the office is well organized and the individual rating agent is pursuing
an exemplary path of professionalism he will still have to cope with marriages that break up, kids that need to be
taken to the airport, liposuction appointments, gym subscriptions, transport strikes, black-outs, and the insanity
that others create around him. If he can juggle all this and understand the bundle of the individual debt obligation
without having to resort to superficial circumstantial evidence then he must be a true hero.
AE: Again, I am not sure if this is an accurate picture of reality?
Nd: That probably is because you have never worked as en employee yourself. Because if you had done so you
would not want to discard our observations so gingerly. For too much would you have been affected by them that
you would now still want to ignore this mess.
AE: Come on, you know as well as I do that I have considerable work experience under my belt!
Nd: In some backwater jobs, yes.
AE: And your's weren’t backwater jobs.
Nd: Yes, they were. But that doesn't mean to say that the experiences we made there does not count.
AE: Perhaps, you are right.
Nd: Of course, we are. Just listen to the complaints that people around you voice and you can be sure that our
description of the credit agent’s reality is not that far off the mark.
AE: Okay then, let us presume that you are right and that life indeed has become too overwhelming that any
individual could still be able to adequately value the most complex instruments that this life has to offer. Would it
follow form this then that structured finance should be done away with altogether?
Nd: No, no structured finance is here to stay. And so are credit rating agencies. What needs to happen though is
to provide for more and better media platforms which can help the general public to compliment the work of the
individual rating agent by formulating an independent and educated opinion about the complexities that are going
on in the financial world today.
AE: So you believe that the attempts of the SEC to reform the statute that governs credit rating agencies are
waisted energy?
Nd: Not all. No, no there can be no doubt that this and that (such as the reduction of conflicts of interest) needs to
be done on the micro-level in order to draw the right lessons out of the previous disaster. All that we are saying is,
that these reforms on the micro level aren’t enough to safeguard us as against future mishaps in this field.
AE: So we are back to the idea of a taxpayer financed, C-Span-like business channel?
Nd: Correct?
AE: And surely this is the point too, where you would like to refer us to your earlier pronouncements on this?
Nd: Absolutely!
AE: So can we leave at this then for the time being?
Nd: Yes, we can. And sorry again for having gone personal in this debate.
AE: No problem.
Nd: We, sure, hope so.
Q&A between Noah denkt™ and its Alter Ego, first drafted on June 12, published on June 15, 2008
-------------------------------------------------------------------------------------------------------------------------------------------
Question by Noah denkt™’s Alter Ego(AE): What’s on Noah denkt™’s mind today?
Answer by Noah denkt™ (Nd): We are currently thinking about the SEC’s investigation into the practices of credit
rating agencies the findings of which were made public yesterday.
AE: Oh, you are referring to the US Securities and Exchange Commissions probe into what caused credit rating
agencies to issue such positive evaluations on a large number of collateral debt obligations when ultimately it
turned out that most of them were not even worth the paper that they were written on?
Nd: Exactly!
AE. And what is it that is nagging you with the respect to this?
Nd: Well, it is the question whether it is at all possible to rate such complex instruments adequately. After all, it
must be terribly difficult to get to the bottom of something that is so collectively bundled.
AE: You mean that these CDOs comprise so many individual loans, contracts, client-bank relationships that it
must be very difficult to review all the necessary date to competently evaluate them?
Nd. Right! After all, it is not only the complexity of the individual CDO that the rating agent has to deal with, no,
apart from that he also has to somehow manage the interdependent chaos that exists in his company. And last no
least there is also the personal chaos that he will surely have to deal with in his own private life.
AE: But shouldn’t these experts be able to isolate their personal from their business chaos and provide a sound
professional judgment in their core field of competence?
Nd: Honestly, we do not believe that any individual is capable of separating the different layers of chaos that he is
involved in. For too interconnected are these different spheres nowadays that you could now still hope to avoid a
spill-over from one into the other.
AE: Could you illustrate that a little more?
Nd: Sure: Take, for instance, the competitive environment that the rating agent’s employer will find himself in.
Surely, this competition alone will create a pressure that won’t be easy to discard for the individual rating agent.
(So, it is likely that he will have to rely on interns and low paid assistants for support work, that he will be faced
with an eternal fluctuation in the staffing of his office, and that he will have to deal with considerable
dissatisfaction on the part of the support workers just for being treated as a second class citizen. If you add to
that the “Sex-in-the.City”-emotional mess that everyone in the office will be caught up in and the eternal career
positioning that they will have do to maintain their her own competitiveness then you have a cocktail that makes it
hard to imagine how a single rating agent will find the space, the tranquility and the equanimity to get to the
bottom of a complex CDO.)
AE: Isn’t that picture a little too dark ?
Nd: Not if you keep in my mind, that even if the office is well organized and the individual rating agent is pursuing
an exemplary path of professionalism he will still have to cope with marriages that break up, kids that need to be
taken to the airport, liposuction appointments, gym subscriptions, transport strikes, black-outs, and the insanity
that others create around him. If he can juggle all this and understand the bundle of the individual debt obligation
without having to resort to superficial circumstantial evidence then he must be a true hero.
AE: Again, I am not sure if this is an accurate picture of reality?
Nd: That probably is because you have never worked as en employee yourself. Because if you had done so you
would not want to discard our observations so gingerly. For too much would you have been affected by them that
you would now still want to ignore this mess.
AE: Come on, you know as well as I do that I have considerable work experience under my belt!
Nd: In some backwater jobs, yes.
AE: And your's weren’t backwater jobs.
Nd: Yes, they were. But that doesn't mean to say that the experiences we made there does not count.
AE: Perhaps, you are right.
Nd: Of course, we are. Just listen to the complaints that people around you voice and you can be sure that our
description of the credit agent’s reality is not that far off the mark.
AE: Okay then, let us presume that you are right and that life indeed has become too overwhelming that any
individual could still be able to adequately value the most complex instruments that this life has to offer. Would it
follow form this then that structured finance should be done away with altogether?
Nd: No, no structured finance is here to stay. And so are credit rating agencies. What needs to happen though is
to provide for more and better media platforms which can help the general public to compliment the work of the
individual rating agent by formulating an independent and educated opinion about the complexities that are going
on in the financial world today.
AE: So you believe that the attempts of the SEC to reform the statute that governs credit rating agencies are
waisted energy?
Nd: Not all. No, no there can be no doubt that this and that (such as the reduction of conflicts of interest) needs to
be done on the micro-level in order to draw the right lessons out of the previous disaster. All that we are saying is,
that these reforms on the micro level aren’t enough to safeguard us as against future mishaps in this field.
AE: So we are back to the idea of a taxpayer financed, C-Span-like business channel?
Nd: Correct?
AE: And surely this is the point too, where you would like to refer us to your earlier pronouncements on this?
Nd: Absolutely!
AE: So can we leave at this then for the time being?
Nd: Yes, we can. And sorry again for having gone personal in this debate.
AE: No problem.
Nd: We, sure, hope so.
| © Landei Selbstverlag, owned by Wilhelm ("Wil") Leonards, Gerolstein, Germany. All rights reserved. Reminder: Noah denkt™ is a project of Wilhelm ("Wil") Leonards and his Landei Selbstverlag (WL & his LSV). Consequently, all rights to the texts that have been published under the Noah denkt™brand name are reserved by WL & his LSV. The commentary and the reasoning that was provided on this page is for informational and/or educational purposes only and it is not intended to provide tax, legal or investment advice. It should therefore not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or any issuer by WL & his LSV or its Noah denkt™ Project. In fact, WL & his LSV encourage the user to understand that he alone is responsible for determining whether any investment, security or strategy is appropriate or suitable for him. And to leave no doubt as to what this means we urge our user to also note our extended Legal Notice. |
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| Keywords: best practice of credit rating agencies, analyzing collateral debt obligations, rating complex financial instruments, challenges of credit rating agencies, reality of credit rating, quality of credit rating agencies, work of credit rating agencies |