Next door Quote by Danielle DiMartino Booth
““The basic task performed by the credit rating agencies was to strip derivatives of their individuality. Whether it was David Bowie pioneering securities derived from the perpetual value his music had created or a 30-year conventional mortgage, once a credit rating had been assigned, investors were agnostic. Bowie’s AAA-rated royalties and the AAA mortgage on the house next door were interchangeable, or as Gorton said, “informationally insensitive.””
About This Quote
Source Book: The Big Short: Inside the Doomsday Machine by Michael Lewis, 2010
Credit rating agencies homogenize diverse financial products, making investors treat distinct assets as interchangeable, which obscures true risk.
In simple terms: Ratings make different assets look the same, hiding risk.
Key Takeaway
Scrutinize underlying asset characteristics beyond ratings.
Themes
finance
risk
standardization
Mood
cautious
analytical
Type
critical
informative
When to use this quote
- investment analysis
- portfolio construction
- regulatory review
Key Concepts
economics
systemic risk
Questions to Reflect On
- What hidden risks might be ignored due to rating similarity?
- How can investors better differentiate assets?
A Different Perspective
Ratings can be misleading if not supplemented with deeper due diligence.
