Credit Rating Agencies Role in Financial Crisis

1. Credit rank agencies make one of the key enigmas in reconfiguring the ball-shaped financial architecture. Why? What ar the wefts? What is the just more or less believably etymon? * The rating agencies display one of the key problems because they were behind the rating of the complex CDOs as well as taking an inciteive part in creating these mortgage-related products which created conflict of interest. The ratings given to the CDO tranches did not in effect disclose the true credit tonus of the netherlying securities which contained a much high default probabilities. * Options * More regulations by mo to control the issuer pays model. To correct the competitor problem within the issuer pays model, the SEC could place limits on the competition that occurs among the rating agencies. (Acharya & Richardson, 2009) * An alternative coordinate () would be for the SEC to create a department that houses a centralized modify platform for rating agencies. (Acharya & Rich ardson, 2009) * An new(prenominal) option is to deregulate the industry and allow free-market competition forces to shape its further growth and discipline which could bring in players like Bloomberg that would cater bond rating as a value-added services to its clientele. or so likely solution * Although it is a very complex line and it would require a series of regulative changes, a regulatory oversight part that would closely monitor the rating agencies and act as an intermediary in co-ordinated the issuers with the rating agencies. 2. Greece is in trouble. Why? Fast-forward 5 years and describe the most likely outcome of the current problems and their consequences for globular banking and financial markets. * Greece is in trouble because it has failed to watch over below controls its ballooning debt and accumulated a score national debt of over 113% of the uncouths GDP.In April and May of this year Greece has to return a total of $23 one thousand million of its matur ing regimen bonds which raised the question of whether it bequeath be able to refinance the debt at its current financial state. * It has come to turn on that Greece used a series of financial transactions facilitated by Goldman Sachs to make its financials protrude much nicer to sting to the EU requirements of the section countries having to maintain the budget deficit under 3% of GDP. concerns about Greeces high direct of debt led the three main global credit ratings agencies to downgrade Greek government bonds in January, so when Greece issued its bonds, it had offer them at much higher interest rate (five percent higher than those offered on bench mark German bonds) in order to extract investors. (Fleeson) * Depending on how EU deals with the Greece problem, the Euro zone could generate stronger in the outcome or it could face a moral hazard when more(prenominal) of the problematic EU countries (Portugal, Ireland, and Spain) encounter the said(prenominal) problem a s Greece and give conceptualise EU to bail them out. If Greece is allowed to default on its international debt it lead put pull on the entire Euro zone and go out make it more problematic for Portugal, Ireland, and Spain, who receive ratios of debt to gross domestic product that are three times higher than the EU ceiling of three percent, to seize on in the near future. (Fleeson) * If EU backs Greece, it pull up stakes be more easier for the country to bear at favorable rates and it will ease the pressure from the speculators which were betting against Greece and aggravating the problem even more. On a more positive note, the fact that the euro has trimmed during the past four months as a result of the situation with Greece has the made the European goods relatively cheaper and export conditions more favorable. * Most likely outcome is that EU will eventually back Greece in some(a) shape or form, once the instalment countries can agree on the measures, to keep it from de faulting and impose stricter economicalal rules on the members to adhere to in order to create safe economic environments. analysts say that supportive tittle-tattle (and even credit guarantees) will probably not be enough to lay aside Greeces finances and that ultimately the country is likely to need a case of loans put together by other EU governments and the International Monetary gillyflower (IMF). (Fleeson) * As part of the deal be forged in Brussels, Germany and France are demanding that the eurozone fiat its rule book about economic convergence, including sanctions against governments (such as Greeces) that deceive their EU partners about their real financial situation. (Maudave) * The emergence of changes of this sort, including in force(p) measures of discipline against offending eurozone countries, the new monetary discipline and beginning of collective economic governance among the eurozone countries, could be an important measuring forward to the EUs global clout. Such progress toward economic viscidity and credibility could amount to progress on a par with the Lisbon pact and, for the long run, a silver veneer to the current economic hardship organism inflicted on the EU economies. (Maudave) References Viral Acharya, Matthew Richardson. Restoring financial Stability How to Repair a Failed system. tender Jersey John Wiley & Sons, Inc. , 2009. Print Tony Spadaccia. U. S. is Resembling Greeces Economic Decline. The Breeze, March 18, 2010. Web. Sat. 20 March, 2010 http//breezejmu. org/2010/03/18/us-is-resembling-greeces-economic-decline/ get out Fleeson. Sovereign Debt Liable to submerse System in the EUs Five PIIGS. The European Institute, February 2010. Web. Fri. 2 March, 2010 Will Fleeson. Euro Zone Acts to Dodge Greeces Bullet provided More to Come From PIIGS? The European Institute, February 2010. Web. Fri. 12 March, 2010 http//www. europeaninstitute. org/February-2010/euro-zone-may-dodge-the-bullet-from-greece. html Basil Maudave. EU Bail-Out For Greece? clipping Has Come, Reportedly, To Do It With Conditions. The European Institute, March 2010. Web. Fri. 12 March, 2010 Arthur E. Wilmarth, Jr. Controlling Systemic luck in an ERA of Financial Consolidation.