Question
Read the following articles on the problem of inflated bond ratings and the conflict of interest faced by credit rating agencies and answer questions below.
Read the following articles on the problem of inflated bond ratings and the conflict of interest faced by credit rating agencies and answer questions below.
Inflated Bond Ratings Helped Spur the Financial Crisis. They're Back. https://www.wsj.com/articles/inflated-bond-ratings-helped-spur-the-financial-crisis-theyre-back-11565194951? mod=article_inline
Lawmakers Push for Changes in Credit-Ratings Industry https://www.wsj.com/articles/lawmakers-push-for-changes-in-credit-ratings-industry-115809
(a) According to the articles, what causes the problem of ratings inflation? Does increased competition among rating agencies alleviate this problem?
(b) What was the new business model of the credit rating industry that was proposed and included in the 2010 Dodd-Frank law?
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