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De-rated: how ratings agencies and regulations failed

When one sets his heart on being highly esteemed, and achieves such rating, then he is automatically involved in fear of losing his status.

Lao Tzu

Banks cannot be excused for the lack of prudence they showed in their business practices from 2005 onwards. Their over-reliance on models based on benign assumptions, perverse incentives, lack of data, bad timing and misguided competition all added to the build-up of leverage that affected not just subprime but all lending in the US and Europe. Their partners in miscalculation were the credit rating agencies that conferred high ratings on the assets acquired by banks. The relationship between banks and the rating agencies was an unholy ...

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