2007–2008 financial crisis

The impact of regulatory changes on rating behaviour

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화요일, 4월 2, 2024

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Abstract

Key Points:

Abstract
We examine rating behaviour after the introduction of new regulations regarding Credit Rating
Agencies (CRAs) in the European securitisation market.
There is empirical evidence of rating catering in the securitisation market in the pre-GFC period (He et al.,
2012; Efing and Hau, 2015).
Competition among
CRAs could diminish ratings quality (Golan, Parlour, and Rajan, 2011) and promotes rating shopping by
issuers resulting in rating inflation (Bolton et al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition to the creation of
European Securities and Markets Authority (ESMA), a regulatory and supervisory body for CRAs was
introduced.
We examine how rating behaviours have changed in the European securitisation market after the
introduction of these new regulations.
We utilise the existence of multiple ratings and rating agreements between
CRAs to identify the existence of rating shopping and rating catering, respectively (Griffin et al., 2013; He
et al., 2012; 2016).
We find that the regulatory changes have been effective in tackling conflicts of interest between issuers
and CRAs in the structured finance market.
Rating catering, which is a direct consequence of issuer and
CRA collusion, seems to have disappeared after the introduction of these regulations.
There is empirical evidence of rating catering in the securitisation market in
the pre-GFC period (He et al., 2012; Efing and Hau, 2015).
Competition among CRAs could diminish ratings quality (Golan, Parlour,
and Rajan, 2011) and promotes rating shopping by issuers resulting in rating inflation (Bolton et
al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition
to the creation of European Securities and Markets Authority (ESMA), a regulatory and
supervisory body for CRAs was introduced.
We find that the regulatory changes have been effective in tackling conflicts of interest
between issuers and CRAs in the structured finance market.
Rating catering, which is a direct
consequence of issuer and CRA collusion, seems to have disappeared after the introduction of
these regulations.
Investors who previously demanded higher spreads for rating agreements for a
multiple rated tranche, did not consider the effect of rating harmony as a risk in the post-GFC
period.
Regarding rating shopping, we find that the effectiveness of the changes has been limited,
potentially for two reasons.
Additionally, we also find that rating over-reliance might still be an issue, especially
Rating catering is a broad term and it can involve rating shopping.
They re-examine the rating shopping and rating
catering phenomena in the US market by looking at the post-crisis period between 2009 and 2013.
Using 622 CDO tranches, they also observe the existence of rating shopping and the diminishing
of the rating catering.
Firstly, our main focus is the EU?s CRA Regulation and its effectiveness in reducing
rating inflation and rating over-reliance.
To the best of our knowledge, this paper is the first to
examine the effectiveness of the EU?s CRA regulatory changes on the investors? perception of
rating inflation in the European ABS market.
Hence, the coverage and quality of our dataset constitutes significant addition
to the literature and allows us to test the rating shopping and rating catering more authoritatively.
The following section reviews the literature
on securitisation concerning CRAs and conflicts of interest, and outlines the regulatory changes
introduced in the post-GFC period.
Firstly, ratings became ever more important as the Securities and
Exchange Commission (SEC) 5 began heavily relying on CRA assessments for regulatory purposes
(i.e.
the investment mandates that highlight rating agencies as the main benchmark for investment
eligibility) (SEC, 2008; Kisgen and Strahan, 2010; Bolton et al., 2012).
issuers) as one of the main explanations for the rating inflation (He et al., 2011; 2012; Bolton
et al., 2012; Efing and Hau, 2015).
Bolton et al., (2012) demonstrate that competition
promotes rating shopping by issuers, leading to rating inflation.
The last phase, CRA III, was implemented in mid-2013 and involves an additional
set of measures on reducing transparency and rating over-reliance.
As mentioned above, rating inflation can be caused by rating shopping
In order to be eligible to use the STS classification, main parties (i.e.
The higher the difference in the number of ratings for a
given ABS tranche, the greater the risk of rating shopping.
Alternatively, the impact of the new
regulations could be limited when it comes to reducing rating shopping.
This is because, firstly,
the conflict of interest between securitisation parties is not necessarily the sole cause for the
occurrence of rating shopping.
L is a set of variables (Multiple ratings, CRA reported, Rating agreement) that
we utilise interchangeably to capture the rating shopping and rating catering behaviour.
Hence, issuers are incentivised to report the highest possible rating and
ensure each additional rating matches the desired level.
All in all, our results suggest that
the new stricter regulatory measures have been effective in tackling conflicts of interest and
reducing rating inflation caused by rating catering.
Self-selection might be a concern in analysing the impact of the
new measures and investors? response with regard to the rating inflation.
This
result is in line with the earlier findings suggesting that regulatory changes have reduced investors?
suspicion of rating inflation and increased trust of CRAs.
Conclusion
Several regulatory changes were introduced in Europe following the GFC aimed at tackling
conflicts of interest between issuers and CRAs in the ABS market.
Utilising a sample of 12,469
ABS issued between 1998 and 2018 in the European market, this paper examined whether these
changes have had any impact on rating inflations caused by rating shopping and rating catering
phenomena.
We find that the
effectiveness of the changes has been more limited on rating shopping potentially for two reasons.
Tranche Credit Rating is the rating reported for a tranche at launch.

Is capitalism dead? Yanis Varoufakis thinks it is – and he knows who killed it

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수요일, 11월 8, 2023

His late father, a chemical engineer in a steel plant, instilled in his son a critical appreciation of how technology drives social change.

Key Points:

His late father, a chemical engineer in a steel plant, instilled in his son a critical appreciation of how technology drives social change.
In his striking response, Varoufakis argues that we no longer live in a capitalist society; capitalism has morphed into a “technologically advanced form of feudalism”.
Review: Technofeudalism: What Killed Capitalism – Yanis Varoufakis (Bodley Head)

Rent over profit

Such capitalists are clearly still flourishing, but Varoufakis argues they are not driving the economy in the way they used to.
“In the early 19th century,” he writes,
many feudal relations remained intact, but capitalist relations had begun to dominate.
many feudal relations remained intact, but capitalist relations had begun to dominate.

If you are a seller, the platform will determine how you can sell and which customers you can approach.
The terms in which you interact, share information and trade are dictated by an “algo” that “works for [Jeff Bezos’] bottom line”.
This is not extracting profit through the production or provision of goods and services, as these platforms are not a “service” in the sense in which the term is used in economics.
They are extracting rents in the form of the huge cuts they take from the capitalists on their platforms.

Cloud serfs

Every time we use our cloud-linked devices – smartphones, laptops, Alexa, Google Assistant, Siri – we replenish the capital of the Big Tech cloudalists.
This in turn increases their capacity to generate more wealth.
We train their algorithms, which train us, to train them, and so on, in a feedback loop whose goal is to shape our desires and behaviour.
They could innovate “attention-grabbing” ways of “manufacturing” consumer desires – and it was delivered free-to-air!

Quantitative easing

First, the “internet commons” of Web 1.0 transformed into Web 2.0, privatised by American and Chinese Big Tech.
Coupled with “austerity” economics for the many, this “murder[ed] investment” and led to what Varoufakis calls “gilded stagnation”.
Much of the central bank money, particularly following another round of quantitative easing during the COVID pandemic, made its way to the Big Tech companies.
In an environment where profit became “optional”, loss-making Big Tech companies run by “intrepid and talented entrepreneurs” chose to build up their cloud capital.

GFC: the turning point

So why was the GFC such a pivotal point?
From the 1970s, economies were progressively deregulated and free-market policies were increasingly enthusiastically practised, leading to a new “financialised” version of capitalism.
Their collapse in 2008 would have taken down the US banking system, and the rest of the world with it.
What happened instead was that bankers, handed large bailouts, did not direct the money to where it was most needed.
Read more:
'Greed is amoral': how Wall Street supermen cashed in on pandemic misery and chaos

A tech-driven economic revolution

For Varoufakis, we are not just living through a tech revolution, but a tech-driven economic revolution.
He challenges us to come to terms with just what has happened to our economies – and our societies – in the era of Big Tech and Big Finance.

The first decades of the 21st century have brought challenges that we are still struggling to come to grips with.
One thing is for sure – we have no hope of improving things without properly understanding our predicament.
The proposals are pretty radical, but I think Varoukais would say they are as radical as the times require them to be.

Christopher Pollard does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Forbes names Joy Alukkas as India's Richest Jeweller

Retrieved on:

월요일, 10월 16, 2023

Paralysis, Forbes India, Joy Alukkas, Growth, 2007–2008 financial crisis, Rolls-Royce, Nightclub, Retail, Jewellery, Far East

MUMBAI, India, Oct. 16, 2023 /PRNewswire/ -- Joy Alukkas Group proudly announces that the company's Chairman, Mr. Joy Alukkas, has steadily climbed up the ranks to reach the 50th spot in 'Forbes List of India's 100 Richest 2023'. As the only jeweller from India on this prestigious list, Mr. Joy Alukkas displayed an outstanding performance that surpassed even listed peer groups in the industry.

Key Points:

'Forbes List of India's 100 Richest 2023' ranks him as 50th richest Indian.
MUMBAI, India, Oct. 16, 2023 /PRNewswire/ -- Joy Alukkas Group proudly announces that the company's Chairman, Mr. Joy Alukkas, has steadily climbed up the ranks to reach the 50th spot in 'Forbes List of India's 100 Richest 2023'.
As the only jeweller from India on this prestigious list, Mr. Joy Alukkas displayed an outstanding performance that surpassed even listed peer groups in the industry.
Mr. Joy Alukkas was instrumental in revolutionising Indian jewellery sector.

Forbes names Joy Alukkas as India's Richest Jeweller

Retrieved on:

월요일, 10월 16, 2023

Multimedia, Paralysis, Forbes India, Joy Alukkas, Growth, 2007–2008 financial crisis, Rolls-Royce, Nightclub, Retail, Jewellery, Far East

MUMBAI, India, Oct. 16, 2023 /PRNewswire/ -- Joy Alukkas Group proudly announces that the company's Chairman, Mr. Joy Alukkas, has steadily climbed up the ranks to reach the 50th spot in 'Forbes List of India's 100 Richest 2023'. As the only jeweller from India on this prestigious list, Mr. Joy Alukkas displayed an outstanding performance that surpassed even listed peer groups in the industry.

Key Points:

'Forbes List of India's 100 Richest 2023' ranks him as 50th richest Indian.
MUMBAI, India, Oct. 16, 2023 /PRNewswire/ -- Joy Alukkas Group proudly announces that the company's Chairman, Mr. Joy Alukkas, has steadily climbed up the ranks to reach the 50th spot in 'Forbes List of India's 100 Richest 2023'.
As the only jeweller from India on this prestigious list, Mr. Joy Alukkas displayed an outstanding performance that surpassed even listed peer groups in the industry.
Mr. Joy Alukkas was instrumental in revolutionising Indian jewellery sector.

'Greed is amoral': how Wall Street supermen cashed in on pandemic misery and chaos

Retrieved on:

월요일, 7월 24, 2023

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis chronicles the cold-blooded response of Wall Street to the COVID pandemic.

Key Points:

Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis chronicles the cold-blooded response of Wall Street to the COVID pandemic.
New York finance journalist Scott Patterson reports how savvy investors used the devastation of the pandemic to reap billions in profits.
Review: Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis (Scribner) Chaos Kings is not so much about the rapacious “greed is good” mentality of the 1980s.
As the profits flowed from the COVID disaster, there was little hint of any ethical quandary.

The COVID casino

In the pages of Patterson’s book, we meet colourful characters from up and down Wall Street who closely studied the illness and death spawned by COVID as it spread around the world.
But most of all, they were “the smartest guys in the room”, who used it for their own financial gain.
Nassim Taleb, Bill Ackman, Yaneer Bar-Yam, Mark Spitznagel – these are not household names.
But they all won big in the pandemic casino by operating as crisis-hunting “stock market visionaries”.

On the doorstep of doom?

But those events were small-time in comparison to what was happening in 2020.
But his book also reads, in some ways, like a set of interconnected fictional short stories, filled with thrilling twists, turns and revelations.
The Wall Street protagonists undertake epic journeys, fight mythical beasts and weather calamitous acts of nature, only to return home stronger and richer men.
But Chaos Kings is not fiction and Patterson does not entirely accept his own heroic narrative.

Growth Institute Boosts Careers of Over 75,000 Mid-Market Executives in 12 Years Through Intensive Learning

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금요일, 6월 2, 2023

2007–2008 financial crisis, Learning, Knowledge, Growth, Book, MBA, Education, COVID, Global Green Growth Institute, Love, Language, Tutoring, Management

Having grown their business beyond the startup stage, they are now looking to make the next step and scale up their business.

Key Points:

Having grown their business beyond the startup stage, they are now looking to make the next step and scale up their business.
Since 2011, this is the niche that Growth Institute has been filling, providing intensive training and support for more than 55,000 business leaders across over 11,000 companies to date.
It uses a hybrid, online-first model of learning, allowing it to reach learners in at least 76 countries.
According to co-founder Daniel Marcos, the story behind Growth Institute goes back to the 2008 Global Financial Crisis, which caused his previous company to go out of business.