Bloomberg: 'Ghost of 1994' looms over Asia

[natnavi]

Some information on moral hazard:

http://en.wikipedia.org/wiki/Moral_hazard

My only concern is if rating agencies are liable for their opinions, then investors are having a fantastic deal as their downside are covered.

I think the extent of rating agencies' liability is important IMO.
Just my 2 cents worth...

I don't think fiduciary duty extends to that far. credit rating agencies have their fiduciary duty to its users to the extent that it is their professional opinion.

The same for lawyers, doctors, IMO.

The lawyer has certain responsibility to advise whether a person should plea for guilty or not based on their professional knowledge. Still the person can decide whether to use this lawyer or the other one.

Hi Freedom,

I fully agree with you. However in this case, the lawyer of the defendant (rating agencies) is using is being paid by the prosecutor (investment banks). Do you still think the lawyer of the defendant will act in the best interest of his/her client, the defendant (retail investors)?

Even though the retail investors are suppose to do their homework, and do some research but most of these retail investors are not that savvy to look into these complex financial derivatives. If you think about it, do you think that AIG, such a large institution, will dare to take on such risks, if they know how big the risks are? Do not forget, it is AIG's bread and butter to understand risks. That is how they come out with insurance plans.