Comments on: How to reduce the risk of future black swans: eliminate issuer-paid ratings

By: donjl706

donjl706 — Thu, 01 Jul 2010 19:52:18 +0000

@jstaf

The second part of Taleb’s point was that ex-post-facto, people engage in a fallacy of denying the existence of black swans by dwelling on the inevitability of the outcome given the (now obvious) causes. Sounds vaguely familiar…

In response to the article I have two issues: 1) it assigns an extraordinary weight to the ratings. while most professional credit investors do take note of ratings, the ultimate valuation of a security should come from the investors themselves not the ratings agency; 2) the solution of an investor-paid ratings system discounts the fact that given the premise of supply/demand there is much less incentive to rate small-cap names and transactions, creating yet another barrier to entry for small firms trying to access capital markets

By: shaderbc

shaderbc — Thu, 01 Jul 2010 19:37:01 +0000

I think the investors need better access to rating agencies since they are smaller individual units with separate investing interests and goals. The issuers can work as a collective entity with a large capital backing to pay for and organize the request for a rating, do the issuers have that kind of organization and unity? Maybe i dont understand how investor model works.

By: bigkirb71

bigkirb71 — Thu, 01 Jul 2010 18:43:04 +0000

As a side note gold is down forty dollars on the same day that JP Morgan Chase takes over Royal Bank of Scotland’s metal trading business and is made a ring member of the London Metal Exchange.

What a coincidence!

CFTC, you are a useless federal agency that serves no purpose other than to let the mega banks rob investors!

You along with your master JP Morgan Chase need to be abolished!

By: y2kurtus

y2kurtus — Thu, 01 Jul 2010 18:42:03 +0000

In business school one of my best professors had a great saying: “system efficency and system relibility are worthy but competeing goals.” And that is true of almost any system; financial, mechanical, electrical… you name it.

Want to make a car safer… add airbags, a steel safety cage, larger power breaks, power steering… whow wait a minute how come Tata motors can build a car for 1/4th the cost of the lowest priced american made car and 1/10th the price of the average american made car. Answer our laws and consumers mandate safety. That’s also why the average car built today gets exactly the same miles per gallon as the model T Ford.

Look at the american electric grid. Do you want 99.99% uptime or do you want lower electric rates.

In business you can:

A. build something cheap
B. build something fast
C. build something right

If you’re really sharp you get to pick 2 of the above… but not all 3.

By: seashell

seashell — Thu, 01 Jul 2010 18:11:37 +0000

I totally agree with jstaf. I have 30 years of wall street expericne

By: jstaf

jstaf — Thu, 01 Jul 2010 17:16:29 +0000

This article builds on the silly idea that you can prevent black swans, which is an absurd statement as part of the requirement of a black swan is that it is unpredictable.

The financial meltdown wasn’t a black swan, it was the logical outcome of the poor policy making of the last thirty years caused by Republicans and then Democrats falling in love with the idea of free markets, along with lowering taxes to the point where we can’t support the system that was in place for five decades before Reagan.

This was no surprise, this was reaping what you sow.