Faith-Based Financial Regulation: A Primer on Oversight of Credit Rating Organizations

In light of the present economic crisis and their role in it, the world seems suddenly keen to know more about the handful of private corporations--variously known as bond rating agencies, credit rating agencies, credit rating organizations (CROs), or the like--that rate the creditworthiness of corporate and government debt securities. By most accounts, these companies hold extensive sway in public capital markets, and for about thirty years, a few of them have enjoyed literally de jure delegation of federal regulatory oversight over much of the U.S. financial sector. With that power their ratings have value regardless of their accuracy, and they have used this power to earn substantial profits. The regulatory use of credit ratings is particularly troubling because the CROs have been implicated in some of that sector\u27s worst problems and, by most accounts, were intimately tied up in the present mess. The purpose of this Article is not to argue, as others have done and will do in the future, that the CROs have lacked oversight for too long or that their behavior has been suboptimal. This Article also does not urge any particular policy tweak to solve the industry\u27s problems, although it is clear that a necessary (but not sufficient) step is removing regulatory reliance on the CROs. The Article will instead assert two more-general propositions. First, the industry in its current posture cannot be meaningfully regulated, despite the near-universal agreement that if it is to persist in its current quasi-governmental role, it must be regulated. Second, the industry\u27s performance is likely to remain seriously disappointing under any conceivable change in policy or in an industry structure that still contemplates a major private role in formal assessment of credit risk. This will be shown in several ways. This Article will suggest reasons not to be too sanguine about any of the short-term regulatory solutions available at the moment, including legal and voluntary constraints currently in place and those that are currently pending before policymakers. The regulatory efforts that have recently been brought to bear on CROs are mainly structural tweaks and disclosure requirements meant to curtail conflicts of interest and increase CRO competition, which will not work. Controls were already in place to control conflicts and provide disclosure prior to the current economic catastrophe, and they have been shown to have been of no use. Likewise, while increased competition conceivably could improve the price competitiveness of ratings services, we will argue that it is unlikely to improve their quality. Indeed, all proposals so far suggested by academics and others, as well as a few developed in this Article, are fairly problematic, especially those that countenance some important continuing regulatory role for private, profit-making risk raters

Faith-Based Financial Regulation: A Primer on Oversight of Credit Rating Organizations

In light of the present economic crisis and their role in it, the world seems suddenly keen to know more about the handful of private corporations--variously known as bond rating agencies, credit rating agencies, credit rating organizations (CROs), or the like--that rate the creditworthiness of corporate and government debt securities. By most accounts, these companies hold extensive sway in public capital markets, and for about thirty years, a few of them have enjoyed literally de jure delegation of federal regulatory oversight over much of the U.S. financial sector. With that power their ratings have value regardless of their accuracy, and they have used this power to earn substantial profits. The regulatory use of credit ratings is particularly troubling because the CROs have been implicated in some of that sector\u27s worst problems and, by most accounts, were intimately tied up in the present mess. The purpose of this Article is not to argue, as others have done and will do in the future, that the CROs have lacked oversight for too long or that their behavior has been suboptimal. This Article also does not urge any particular policy tweak to solve the industry\u27s problems, although it is clear that a necessary (but not sufficient) step is removing regulatory reliance on the CROs. The Article will instead assert two more-general propositions. First, the industry in its current posture cannot be meaningfully regulated, despite the near-universal agreement that if it is to persist in its current quasi-governmental role, it must be regulated. Second, the industry\u27s performance is likely to remain seriously disappointing under any conceivable change in policy or in an industry structure that still contemplates a major private role in formal assessment of credit risk. This will be shown in several ways. This Article will suggest reasons not to be too sanguine about any of the short-term regulatory solutions available at the moment, including legal and voluntary constraints currently in place and those that are currently pending before policymakers. The regulatory efforts that have recently been brought to bear on CROs are mainly structural tweaks and disclosure requirements meant to curtail conflicts of interest and increase CRO competition, which will not work. Controls were already in place to control conflicts and provide disclosure prior to the current economic catastrophe, and they have been shown to have been of no use. Likewise, while increased competition conceivably could improve the price competitiveness of ratings services, we will argue that it is unlikely to improve their quality. Indeed, all proposals so far suggested by academics and others, as well as a few developed in this Article, are fairly problematic, especially those that countenance some important continuing regulatory role for private, profit-making risk raters

Exploring the Relationship of Enrollment in IDR to Borrower Demographics and Financial Outcomes

As federal policymakers consider changes to income-driven repayment (IDR) schemes, research examining the characteristics and financial behaviors of student loan borrowers participating in IDR is necessary. Using the nationally representative Survey of Consumer Finances, we examined the demographics of IDR enrollment. Counter to expectations, low-income borrowers, and borrowers with high debt-to-income ratios are less likely to enroll in IDR. Conditional on having a large amount of debt, married women of color are likely to enroll in IDR programs. Findings concerning IDR participation may be highly sensitive to how groups are defined and what covariates are in models. IDR participation does not predict engagement in other financial behaviors such as retirement savings or homeownership

Another Lesson on Caution in IDR Analysis: Using the 2019 Survey of Consumer Finances to Examine Income-Driven Repayment and Financial Outcomes

We update Collier et al. (2021) by using the Survey of Consumer Finances (SCF) 2019 dataset to explore characteristics of enrollees in Income-Driven Repayment (IDR). SCF 2019 is more likely to include borrowers engaged in REPAYE. Findings support an ongoing need to encourage greater IDR participation for lowest-income borrowers and reinforce greater participation by female borrowers. Again, model specification affects findings regarding IDR enrollment. REPAYE appears to have widened access to IDR by lowering the debt floor for entry. IDR enrollment was correlated with less money in a traditional checking account and a lower chance of engaging in retirement savings

Umami ethics: is kindness an acquired taste?

Is it possible to persuade everyday people to become more generous, courteous and considerate? I believe the answer is yes, and the emotivist framework provides a guide as to how that might be possible. Rather than assume moral values are shared, we are better served by seeking evidence that this is the case. This requires learning how beliefs inform attitudes, which we can do by actively engaging with the experiences of many kinds of people, including those who are very unlike ourselves. When we do this, we can see that values are determined by many things including personal experiences, culture, even simple preference. From here, persuading people to become more kind depends on identifying connections between the values of any one person, and the goals of the society in which they live; being good does not require abstaining from our desires, it means pursuing them with consideration for others