Academic journal article Journal of Australian Political Economy

Susan Schroeder: Public Credit Rating Agencies: Increasing Capital Investment and Lending Stability in Volatile Markets

Academic journal article Journal of Australian Political Economy

Susan Schroeder: Public Credit Rating Agencies: Increasing Capital Investment and Lending Stability in Volatile Markets

Article excerpt

Susan Schroeder

Public Credit Rating Agencies: Increasing Capital Investment and Lending Stability in Volatile Markets

Palgrave Macmillan, New York, 2015, 196pp.

When the GFC began in 2008-9 there was widespread criticism of the major international credit rating agencies--Moody's, Fitch and Standard and Poor's. They were perceived a having exacerbated, if not caused, the crash because of erroneous judgments they made about the riskiness of complex financial instruments such as 'collatoralised debt obligations'.

Critics, including Robert Wade, argued that the agencies were complicit because they derive income from payments by the very businesses whose securities they are supposedly objectively rating. Nothing new there, of course: as the author of this book notes, the ratings agencies have been subjected to criticisms, including 'regulatory capture', ever since they began. A critique of the agencies and their bizarre rating of Australian governments' securities was published in JAPE No.34 over 20 years ago.

Susan Schroeder's book thoroughly examines the functions that the credit ratings agencies perform, looking from a perspective informed by heterodox economics. It has chapters considering private credit risk, sovereign credit risk, regulatory capture and the role that a public credit rating agency could perform in stabilising an otherwise unstable situation. …

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