"Regulate the Regulator"

Credit Rating Agencies and Lessons from the 2008 Financial Crisis

Abstract

As the 2008 Financial Crisis caused global markets to contract, and people across the United States and the world suffered the costs, there has been a growing and significant body of literature investigating the relative culpability of different financial actors and institutions in perpetrating the 2008 crisis. “Regulate the Regulator” highlights the culpability of credit rating agencies (CRA) for the reason that their industry acted as a de-facto financial regulator in themselves, wielding a unique amount and type of power as the “gatekeepers” or “security guards” of capital markets. This article explores the role of CRAs in precipitating the events of the 2008 crisis by examining factors like inherent conflicts of interest, an opaque rating process that lacked substantive oversight, and the enforcement of a profit-oriented workplace culture. Taking its analysis a step, "Regulate the Regulator" then contextualizes the behaviour of CRAs within the post-1980s American financialization movement.