RISK MANAGEMENT

made to order

[November 21st, 2002]
There are no mortals or institutions with perfect clairvoyance. As economists and market strategists can well attest, forecasting the future can be difficult. Likewise, ratings cannot be perfect predictors of ultimate credit risk for every single issuer.

After each major corporate bankruptcy or sovereign default, markets engage in a natural bout of second guessing. This is a healthy exercise. Through such post mortems, credit diagnostics are improved.

In my view, additional regulatory oversight of rating agencies is unnecessary. Through the years, the rating agencies have consistently demonstrated a zeal to enhance their rating methodology. And depending upon its nature, further regulatory oversight might introduce new subjectivities to the rating process that could lead to the misallocation of capital. [Source]

Jack Malvey, CFA
Managing Director and Chief Global Fixed Income Strategist of Lehman Brothers