AUDIO

The collapse of the market for subprime mortgage-backed securities (MBS) and other complex derivative securities created a panic among the global investors and short-term lenders who finance such assets, resulting in large losses for investment funds and banks around the world. Critics claim that the major rating agencies failed to promptly adjust ratings for these securities, and they question the workings of the entire credit rating system. Do these claims have merit?

Does the subprime debacle mean that the ratings process for complex structured transactions needs to be fundamentally changed? Just a year ago, Congress legislated new procedures to govern how the Securities and Exchange Commission (SEC) oversees the rating agencies. Will this legislative approach be effective?

Critics argue that the system of securities issuers paying rating agencies for the rating of their products creates a conflict of interest. How serious is this problem? How could investor-paid rating agencies become more significant competitors? Should rating agencies be regulated by the SEC, another entity, or not at all?

This event is cosponsored by AEI and the Professional Risk Managers’ International Association.

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