Rating agencies increasingly function as rule makers rather than neutral judges.
Evidence
The likelihood of receiving a bad rating from firms like Standard & Poor’s or Moody’s these days seems somewhat unlikely. Because of the growing complexity of financial markets and the securities they offer, rating firms are increasingly taking on the role of regulators and rule makers as well as judges. Ratings become negotiable as corporations structure their deals to accommodate the demands of the raters and thereby get the ratings they need (Monroe 1986). — Shapiro, Susan P., The Social Control of Impersonal Trust, 105
Categorization
- XREF: This is the same dynamic as ‘gaming the metering’ in the reader’s audit/accounting knowledge, and anticipates how guardians themselves become captured by those they judge. — connects to: Credit rating firms now function as regulators whose ratings corporations actively negotiate around. — Shapiro, Susan P., The Social Control of Impersonal Trust, 105; Formal judges strengthen reputation systems rather than replace them. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 14; Ratings agencies’ internal culture shifts, not technical error, enabled crisis mispricing — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 2345 (+1 more)
- BMF: Corporations structuring deals to obtain ratings from the same firms meant to judge them evokes the premise in ‘We’ where the state manufactures the very happiness it claims to merely measure — the judge becomes the rule maker on behalf of the judged, all in the name of impartiality.
- SHARE: A finance-obsessed friend who follows CRA post-2008 reform debates would appreciate this compact statement of the ratings-capture paradox.
Related
- Credit rating firms now function as regulators whose ratings corporations actively negotiate around. (similarity 0.90)
Broader Connections
- Formal judges strengthen reputation systems rather than replace them.
#complicates(0.75) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 14