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Just Financial Markets?Finance in a Just Society$
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Lisa Herzog

Print publication date: 2017

Print ISBN-13: 9780198755661

Published to Oxford Scholarship Online: May 2017

DOI: 10.1093/oso/9780198755661.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 12 April 2021

Information as a condition of justice in financial markets: The regulation of credit-rating agencies

Information as a condition of justice in financial markets: The regulation of credit-rating agencies

Chapter:
(p.250) 11 Information as a condition of justice in financial markets: The regulation of credit-rating agencies
Source:
Just Financial Markets?
Author(s):

Boudewijn de Bruin

Publisher:
Oxford University Press
DOI:10.1093/oso/9780198755661.003.0011

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, however, that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves.

Keywords:   conflict of interest, credit ratings and rating agencies, epistemology, finance, information and product quality, justice, markets, regulation, securities

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