To Boomers, shave and a haircut, two bits brings back memories of Looney Tunes. It's also the essence of what is wrong with structured finance credit ratings. Wait, do structured finance credit ratings still need fixing? Many assume the answer is "no" because the causes of the GFC are no...

Michael Bright, the incoming president and CEO of SFIG, the U.S. securitization lobby, has pledged "to provide meaningful education, advocacy, and connection for our members across all aspects of securitization.” The former EVP and COO of GNMA established his mortgage credentials working for former Senator Corker...

There are a lot of theories being floated on how to effect financial system stability. Most involve separating money from finance. Reverence for money or cash is evident in the Chicago School of economics and neoliberalism, where value theory is based on price. It also underlies theories that equate banks...

ABSTRACT: Sylvain Raynes experimented with a method developed by Goya and Boyarski (1993) to standardize the synthesis of conditional Markov transition matrices for deal entry in our automated re-rating system, ABSTRAK®. In the analytical literature, the reverse-engineering of a Markov matrix from its spectral-radius eigenvector is referred to as the Inverse Perron-Frobenius...

Adam Hartung wrote a great column in Forbes on thinking prospectively.  So good, I took it on board to frame a conversation about R&R.
  1. Stop waxing eloquently about what you did last year or quarter. Yesterday has come and gone. Let’s talk about the future.
In 2015, R&R Consulting will focus more on selling.
  1. Tell me about important trends that are going to impact your business. Is it demographics, aging population, the ecology movement, digitization, regulatory change, organic foods, mobility, mobile payments, nanotechnology, biotechnology…?  What are the critical trends that will impact your business going forward?
Our business is essentially protected, and protectionism is a formidable adversary when you are an advocate of change. The most critical trend facing the ratings business is need to evolve from ordinal rankings to bona fide risk measures of risk and uncertainty. This is a very dense assertion that needs several steps to unpack.

We can try to change the system, or we can try to change human psychology and behavior. For my money, attempting to change the system by substituting one vision for another is a better way to change the dialogue. Ha-Joon Chang is a Cambridge economics professor, Guardian columnist and influential critic of capitalism, on a mission to change the dialogue on economics from a"god-given" puritanical framework that rewards status-quo wealth to a social system that can be improved, for the benefit of nearly everyone. His recent critique of the positive spin on austerity in The Guardian captured my attention:

Twenty years ago, rating agency analysts disagreed on whether non-AAA corporations could issue AAA-rated structured securities. Aircraft finance was the poster child of the debate. "Impossible. Too volatile," corporate analysts reasoned. Structured analysts would retort: "Not even $1 of securities can be funded at AAA?" And, if $1 can be funded at AAA levels, what about $2? $3? $1 MM? This spring, R&R got close to the emerging solar securitization market through committee work coordinated through the U.S. Department of Energy's National Renewable Energy Laboratory (NREL), which is working to promote solar energy and preparing for the imminent (2016) solar tax credit phase-out. In December 2013, NREL's Travis Lowder and Michael Mendelsohn published a white paper, The Potential of Securitization in Solar PV Finance, which argues for securitization as replacement funding. R&R discovered that rating agency bias exists against solar PV lease securitization, similar to corporate. The agencies willing to issue ratings (some are not) are capping the rating at low Investment Grade risk levels. Really? Not $1 of securities backed by energy that continuously self-generates is capable of being rated AAA?