Credit Markets: April 2010 Archives

by Edward I. Altman, Sabri Oncu, Anjolein Schmeits, and Lawrence J. White

The three large global credit rating agencies - Moody's, Standard & Poor's, and Fitch - were central players in the subprime residential mortgage debacle of 2007-2008. Their initial overly optimistic ratings on mortgage-related securities encouraged the housing boom and bubble of 1998-2006. When house prices ceased rising and began to fall, mortgage default rates rose sharply, and the prices of the mortgage bonds cratered (as did their ratings), wreaking havoc throughout the U.S. financial system.

The Securities and Exchange Commission has already expanded its regulation of the rating agencies, and congressional legislation may well insist on more. But to understand the proper route forward, it's important to understand how we got to where we are today.

by Stijn Van Nieuwerburgh and Lawrence J. White

The financial regulatory reform bill that was recently proposed by Senate Banking Committee Christopher Dodd has a huge hole: It says nothing - absolutely nothing! - about Fannie Mae and Freddie Mac. These are the two investor-owned government-sponsored enterprises (GSEs) that currently are at the center of the residential mortgage markets in the United States. They are the two 900-pound (or $900-billion-in-assets) gorillas in the room that keep getting ignored.

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors