Word of The Day – OCR

OCR – Optical Cheating Recognition agency

Definition: OCR is the Office of Credit Ratings, a new unit of the SEC that oversees credit-rating agencies.

Discussion: The government believes that optimistic ratings of mortgage derivatives and other bank investments by credit-rating agencies promoted the financial crisis. So, the Dodd-Frank reform law has set up an overseer for the big credit rating agencies.

No, these are not the personal credit-rating bureaus you may be familiar with: Equifax, Experian and TransUnion. These credit-rating agencies rate sizable organizational debt. They include Moody’s, McGraw Hill’s Standard & Poor’s, and Fimalac SA’s Fitch.

But here’s the rub – credit raters rate government debt too.

In fact, this week Standard and Poor’s threatened to downgrade our US government debt. So, here’s the dilemma: what if the watchee watches the watcher?

If the government is watching S&P, and S&P is watching the government, and they disagree about the safety of our sovereign debt, which one can you trust? And then again, if the government regulates the raters, can you trust them if they agree?

Related term: credit rating agencies

Copyright © 2011 Nancy K. Humphreys


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