Bernanke Assigns Blame to Rating Agencies

April 20, 2012 by · Leave a Comment
Filed under: The Rating Agencies 

In a speech addressing the lessons learned from the recent Financial Crisis, Federal Reserve Chairman Ben Bernanke assigned blame for the collapse to a variety of industry players, including the rating agencies.

In his speech, he complained of “securities that proved complex, opaque, and unwieldy.” And he pointed a finger at the rating agencies that were asked to evaluate these hydra-like asset-backed securities and issued ratings that “were revealed to be subject to conflicts of interest and faulty models.”

Investors were unable to distinguish between AAA-rated securities. Mr. Bernanke said that even those who were able (or inclined) to do their own credit analysis found “the information needed to do so was often difficult or impossible to obtain.”

“It is clear that the statutory framework of financial regulation in place before the crisis contained serious gaps,” Mr. Bernanke said in summary. “Market discipline, imposed by creditors and counterparties, helped on some dimensions but did not effectively limit the systemic risks these entities posed.”

He left “to another time” any discussion of changes to the regulatory framework.

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