Europe Wants Good News Only

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New York Times' Room For Debate

Europe Wants Good News Only

Lawrence J. White | Nov 03, 2011

Lawrence J White has a New York Times Room for Debate piece out on the European banking debate.

Restricting ratings on European governments’ bonds? This is a terrible idea. To understand why, let’s review what the three large credit rating agencies -- Moody’s, Standard & Poor’s and Fitch -- actually do, and why they are so important in financial markets. Rating agencies offer judgments, in the form of ratings, about the creditworthiness of bonds -- issued by corporations, municipalities, national governments and mortgage securitizers. The agencies help lenders address the question: “Will I get paid back?” (And remember, bonds are loans, so bond investors are lenders.)

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