By now, everyone must know that the credit markets have all but imploded. I found an excellent analysis of the “big picture”. This was all precipitated by the apparent inability of major financial players to properly assess risk. Did they suddenly get stupid? No, the “big players” are required by law to use one of three anointed firms to do risk evaluation of securities. In an open market, you’d expect there to be lots of players competing in the risk assessment business. You’d expect competition to keep them on their toes. But Congress, in limiting the number of authorized players, also limited the competition and the good results that come from competition. What we have is a regulatory problem – not too little regulation, but too much.
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