Frankenstein Essay

In the novel Frankenstein, Mary Shelley makes an enthusiasm for human life however the enthusiasm for human life comes in the afterlife. Human life has stretched because of the triumphs of researchers in the district of clinical science. Expanding human life turned into the objective of a researcher named Victor Frankenstein. Past needing to expand life, he additionally wanted to forestall future passings of endless guiltless individuals and to reduce the idea of death itself. Following Frankenstein, researchers at MIT started exploring approaches to propel life. After numerous years Frankenstein’s objectives and aspirations of expanding human life proceed, as researchers lead research on cloning and recovering body parts to assist humankind with living longer. As a researcher, Victor realizes his obligation is to support humankind; be that as it may, on the off chance that he can't find something that will, at any rate his examination should lay a base for different researche rs. â€Å"My tasks may be unendingly puzzled, and finally my work be blemished; yet, when I considered the improvement which consistently happens in science and mechanics, I was urged to trust my current endeavors would at any rate establish the frameworks of future successes† (P 43). By that quote, the peruser can see that Frankenstein’s want to meddle with nature can not be accused, since his activity as a researcher is to ensure the endurance of mankind. His dedication and desire ought to be lauded as he clarifies that, â€Å"In different investigations you go the extent that others have gone before you, and there is nothing more to know, yet in a logical interest there is consistent nourishment for revelation and wonder† (P 62). He comprehends there are numerous prospects in the field of science and he realizes he should simply try different things with those potential outcomes. On the off chance that Frankenstein had not tested during the 1800s, researchers would not have accomplished as much as they have today in the territories of cloning and making human body parts. To demonstrate the significance of testing science as far as possible, he intensely states, â€Å"yet with what number of things are we upon the edge of getting familiar, if weak ness or inconsiderateness didn't control our inquiries† (P 65). The researcher inside Frankenstein prompts him to make his beast, and doesn't consider himself to be playing God while Shelley depicts him as playing God. Shelley accepted that science helps humankind in different manners however theres a line that numerous researcher cross and wind up going excessively far. She deciphers this inclination towards science with Frankenstein by making a main impetus inside him toâ help humankind vanquish demise and illnesses. Be that as it may, when he at last arrives at his objective of his endeavors and sees his animal and its grotesqueness, he gets some distance from it and escapes the enormity he made, â€Å"How would i be able to depict my feelings at this calamity, or how outline the rapscallion whom with such boundless agonies and care I had attempted to form?† (P 72). From that second on he attempts to stifle the outcomes of his trials and needs to get away from them by working in different sciences. Victor even pulls back from his companions and mental changes are obvious. Shelley appears not to censure the demonstration of creation but instead Frankenstein’s absence of eagerness to acknowledge the duty regarding his deeds. His creation just turns into a beast right now his maker abandons it. Along these lines Frankenstein cautions o f the reckless utilization of science. Then again, researchers at MIT started working with human tissue to make fake human body parts for substitution treatment, where researcher cautiously and altogether screen the elements of this creation. â€Å"We can utilize this heart tissue and use it on an individual who is having issues with his heart† states a specialist in a MIT narrative (The Science of IPS Cells). The statement underscores that despite the fact that researchers appear to change the method of God manifestations, this advantages humankind by sparing lives. Frankenstein needs to prevent individuals from biting the dust, and subsequent to finding the mystery of life, he tries, so another person can be spared. Researchers today nearly do a similar thing as Frankenstein; they have discovered approaches to expand life yet in the event that they come up short at this, they backtrack their means and experience the procedure again to fix botches not at all like Victor. All in all, Dr. Victor Frankenstein turned into an author for the accomplishments in clinical science today. He ought not be scrutinized for playing God and messing with nature, rather he ought to be attributed for testing to broaden human life today. Without his investigations clinical science would not be as cutting edge as it is currently, and researchers would not have the test to begin their exploration. Analysts at MIT realize that Frankenstein is directly in his aspiration to propel human life, in this manner they and different researchers today keep on investigating in t he field of life. Shelley effectively puts herself in the psyche of a researcher with the creation Frankenstein.

The Changing Role of Women in Society

Changing Role of Women in Society How was the status of lady and their privileges spoken to in western culture in the 1600 to mid twentieth century? For a considerable length of time, lady and their privileges have been abused by the predominance of man. There has been proceeded with battle for the acknowledgment of woman’s social jobs and accomplishments, and for their social and political rights. It was a lot of a man centric culture for lady, which thwarted or kept lady from understanding their gainful and imaginative possibilities.These thoughts where found in the play Merchant of Venice composed by William Shakespeare in c. 1598 when Portia and Nerissa need to take on the appearance of men so they can go into the court to help Antonio in light of the fact that lady are not permitted to enter courts alongside numerous other open spots men had considered unbefitting for lady. Portia says, â€Å"And wear my blade with a more intrepid beauty and talk between the difference i n man and kid with a reed voice, and transform two mincing strides into a masculine step, and discuss brawls. Another case of this in the Merchant of Venice is when Portia is conversing with Nerissa about the injustice of her dads will, she says â€Å" I may neither pick who I would nor reject who I despise; so is the desire of a living girl controlled by the desire of a dead dad. † We see this sort of portrayal of lady once more, after 50 years, from my source ‘The Law’s Resolutions of Woman’s Rights, 1632. A case of this can be found in the area ‘Sect. viii. that the spouse that is his own. It states, â€Å"The spouse hath in that no seisin at all.If anything when he is hitched be given him, he taketh it without anyone else particularly to himself,† and that â€Å"the very merchandise which a man giveth to his better half are as yet his own: her chain, her arm bands, her attire, are altogether the acceptable man’s products, †¦ A wife how gallent soever she be, glistereth however in the wealth of her significant other, as the moon hath no light yet it is the sun’s†¦Ã¢â‚¬  We see proof of this treatment of lady again in this source under the Sect. ix. That which the wide hath is the husband’s. It states â€Å"For accordingly it is, if before marriage the lady were equipped with ponies, perfect, sheep, corn, fleece, cash, plate, nd gems, all way of moveable substance is by and by combination the husband’s. † Moving forward in time one more century, we find in my source British Woman’s Emancipation since the Renaissance, in the mid 1800s. It cites from The Times, because of the proposition of a select board to be set up to consider how to adjust a part of the Strangers’ Gallery for Ladies’ Gallery in the new House of Commons, The Times opined: â€Å"We should get a kick out of the chance to see a rundown of women who have looked for this method of killing their time†¦ As to their quality humanizing banter, it is all fudge.The most rough scene we at any point saw was in the House of Lords, in wide day, when the seats were filled women in all the monumental attractions of full dress†¦ blood would have been shed in the event that it has still been custom to wear swords†¦ If women of England want this novel method of disposing of their boredom, let them be reveled, yet let us not be so crazy as to expect and effect on the character of the discussion. The female audience members might be vulgarize; the male speakers won't be refined. † Finally, I arrive at the time of the Second World War in the mid twentieth century.This prompted a visual notice marked, Rosie the Riveter. I utilized an editorial by Jessica Valenti called Rosie the Riveter leaves a solid inheritance to discover data from this banner. It clarifies the foundation of the notice expressing, â€Å"The banner charged to help enroll ladies to work during t he Second World War. US ladies had consistently worked, obviously, however the wartime get the opportunity to-work promulgation was explicitly outfitted towards white working class ladies, and during the war the female workforce developed by 6. million. † Though this was a gigantic change from what lady were utilized to, we despite everything see cliché thinking toward the lady, for instance, in one of the ads discharged it says, â€Å"Can you utilize an electric blender? Assuming this is the case, at that point you can figure out how to work a drill. † I accept that ladies, undeniably, have ceaselessly needed to battle for acknowledgment under the strength of man not simply during the 1600s to mid twentieth century yet additionally for a considerable length of time earlier.They have over and again been denied of the natural option to cast a ballot, get a sufficient instruction, and to get the opportunity to create to their fullest human potential. I accept that the vi ew society has on lady is just about somewhat of a Catch 22. My thinking for this is on the grounds that society accepts ladies are less keen than men, and subsequently are not equipped for being engaged with occupations the remainder of society does, they tell lady that they are not permitted to get legitimate instruction like the remainder of society.This implies that paying little mind to the normal insight of a lady, they will never arrive at a similar degree of knowledge as men since they are not being permitted sufficient training so they can create to their full human potential. I accept that the occasions that happened in the eighteenth century were urgent later on heading present day women's activist gatherings would take. In spite of the fact that the occasions that occurred during the 1800s was the primary trace of progress we saw, it took one more century and a gigantic overall occasion, World War 2, to truly get the show on the road as far as women's activist campaignin g and making genuine long haul change.In my feeling, the explanation ladies and their privileges in western culture had essentially no noteworthy change for larger part of the 400 years I have contemplated is on the grounds that ladies had at no other time gotten the chance to have a go at occupations that had consistently been for men like we saw during the subsequent World War. I accept this is the explanation behind ladies to abruptly start a massive push in women’s rights and fairness over the most recent 100 years. What started any adjustment in the status of lady and their privileges in western society?As found in my first inquiry, during World War II we started to see noteworthy a move in the job of lady in western culture from housewife to common laborers. At the point when the men came back from war they started to understand that things were changing, the lady had started to have some involvement with the board and processing plants, which are on the whole dominatin gly male commanded occupations. Starting there on we saw a ton of strain among men and lady which at that point began quick change in the status of lady in contemporary western society.A source that was discharge two decades later that I found had a section to play in the change that had started during the mid-1900s was Betty Freidan’s true to life book, Feminine Mystique, distributed in 1963. In 1957, Freiden was approached to direct a study on the lady at her fifteenth commemoration with her Smith College colleagues. From this overview she found that a considerable lot of her old schoolmates were discontent with their lives as housewives, which prompted her to compose the book.The Feminine Mystique was composed from reviews and meetings done by Freiden and is generally viewed as one of the primary variables associated with starting the ‘second wave’ woman's rights in the United States. She expresses that ‘the publication choices concerning woman’s magazines were being made for the most part by men, who demanded stories and articles that demonstrated lady as either glad housewives or troubled, psychotic careerists, in this way making the ‘feminine mystic’ †the possibility that lady were normally satisfied by dedicating their lives to being housewives and moms. I found that was had an enormous job in the ‘second wave’ as they call it, which started to start immense change in the status of lady and their privileges in contemporary western culture was the Title VII of the 1964 Civil Rights Act, forbidding business segregation based on sex just as race, religion, and national cause. The word ‘sex’ was incorporated absolute last minute.Section 703 (a) made it unlawful for a business to â€Å"fail or decline to enlist or to release any individual, or in any case to victimize any person as for his remuneration, terms, conditions or benefits or work, in view of such person's race, shading, religion, sex, or national starting point. † Another 2 years on, in 1966, 28 ladies and men going to the Third National Conference of the Commission on the Status of Women established an association in Washington, D. C. The association called the National Organization of Women attempts to make sure about political, proficient, and instructive uniformity for woman.In an announcement discharged by Betty Freiden, creator of Feminine Mystique and one of the authors of The National Organization of Woman’s, says that â€Å"The National Organization of Woman is devoted to the relational word that ladies, most importantly, are individuals, who, similar to every others in our general public, must get the opportunity to build up their fullest human potential. We accept that lady can accomplish such equity just by tolerating to the full the difficulties and duties they share with every single others in our general public as a major aspect of the dynamic standard of American polit ical, conomic and public activity. † In the previous century, society has started to see an unavoidable move in the jobs of ladies in contemporary western culture. Noteworthy occasions have occurred in the previous 50 years, which have formed the bearing of current woman's rights today. I found that there were several imperative occasions that were associated with starting change in the status of ladies and their privileges in western. In saying this there were unquestionably double cross periods which uncovered the disparities in the treatment of ladies, these double cross periods are called first-wave and second

Expository Essay Outline All You Need to Know

Expository Essay Outline All You Need to Know Expository essays are a preferred assignment used for various exams, such as SATs and the like. Just as other approaches (or modes of discourse), i.e., Description, Narration and Argumentation, expository writing has its own set of rules that one should follow in writing. Even though often confused with research writing, expository writing does not require as much depth in research. However, it does have the purpose of presenting an idea and then supporting it with evidence. Here we will take a closer look at how to write an outline for expository essay and provide other useful information that will help students master this assignment. What is an expository essay? An expository essay is an academic piece designed to investigate a certain scientific idea and illustrate it with evidence. Different techniques can be used for such illustration, compare and contrast being one of the most frequently used. Others include definition, providing examples, etc. The key elements of an expository essay Even though a standalone genre, an expository essay does not differ that much from other types of academic writing. It includes all the main elements â€" a thesis statement, a three-part structure, a list of sources used, and clear transitions between paragraphs. The rules of thesis writing for expository essay The best practices of thesis writing apply to expository essays as well. A thesis that you choose for your essay should be: Narrow so that you could focus on a certain area and avoid scattering your efforts across multiple fields. The only limit here should be availability of information â€" if your thesis statement is too narrow, you won’t be able to find enough information to base your research on. Relevant, so that it matches the prompt that you have received to write the assignment. If you roam too far away from the topic, you risk lowering your grade. Up-to-date for applicable fields. This rule does not apply if you are writing an expository essay in, say, history, but it should apply for all the sciences that deal with urgent issues, such as sociology. Succinct to be put in a single sentence. Debatable, which means opposing points of view should exist and they should not be in absolute minority. It’s absolutely normal to go through several iterations of your thesis statement before you reach the one that will be used in the paper. How to write introduction for expository essay Your thesis statement, as is the case with other papers, will be presented in the first part of your paper â€" the introduction. There are a few things that you should keep in mind when writing this chapter: It is better to write the introduction after you write all the other chapters, because then you will have a better idea of what should be included in it. The thesis statement comes around the end of the first paragraph of your introduction. Prepare the reader to your thesis statement â€" don’t assault them from the very beginning. Use attention hooks that will make sure your reader becomes interested in what you have to say and continues reading. The most frequently used attention hooks are quotations, statistics, and anecdotes. How to write the body for expository essay Body paragraphs in your expository essay should provide evidential support for your thesis statement. In writing them, stick to these best practices: Reserve each paragraph for each argument. The number of paragraphs in your body should indicate the number of arguments you have. Start every paragraph with a summarizing sentence. In other words, the evidential support should be presented in a summarized way in the first sentence with the rest of the paragraph reserved for elaborations and details. It helps to make your writing more comprehensible for readers. Every paragraph should be like a small article of its own. Ideally, it should be possible to change the sequence of paragraphs without losing much sense. Provide transitions between paragraphs so that the reader could understand how one idea arises from another one. Don’t be afraid to add a little bit of creativity to your body paragraphs so that your readers are entertained at least a bit. How to write a conclusion for an expository essay The conclusion chapter is one of the most difficult ones because students often simply reiterate what they have already said in the main part or, which is even worse, repeat their thesis statement. What should be done, however, is revisiting the thesis statement in view of the arguments provided in the body paragraphs. Best practices for conclusion writing include: Do not introduce any new information in your conclusion â€" it should elaborate on what has already been said. Do not restate your thesis statement. Map possible areas for further research. Write the conclusion after you wrote other chapters. Outline template for expository essay If you are struggling with an outline for your expository essay, here is a template to use: Introduction (1 page, a thesis statement is in the first paragraph) Body paragraph 1 â€" Evidential support summarized in the first sentence + details Body paragraph 2 Evidential support summarized in the first sentence + details Body paragraph 3 Evidential support summarized in the first sentence + details Conclusion â€" revisiting the body paragraphs and the thesis statement on their basis. This, of course, is the simplest expository essay outline that you could possible use. However, even with additional paragraphs and details, the fundamental structure will remain the same. So if you want to elaborate, take this as your starting point and build on it. General recommendations about writing an expository essay Here is some general advice on how you can simplify the writing process: Always review the assignment several times before you even start writing. It is all too often that students realize they have been answering the wrong question when there is almost no time left. Read it twice, then put it aside, and then read once again. Ask for a consult if needed. Always plan your time. As any other paper, an expository essay will require you to research sources, outline, draft, and edit. It all takes a lot of time and so should not be taken lightly. Spend half an hour planning and you might as well save hours of time and spare yourself lots of worrying. Ask a different person for review if possible. It is easy to miss the mistakes that you have made if you are proofreading by yourself. A different person has higher chances of spotting grammar mistakes, typos, and even logical flaws. Edit ruthlessly. The best kind of content, academic or otherwise, is born out of ruthless and extensive editing. If parts of your writing don’t fit the general writing, then you should drop them without mercy. Additional paragraphs of text, even nicely written and elaborately inserted, usually clutter your paper and prevent readers from understanding fully what you are trying to say. If something seems out of place, good chances are it is out of place. In general, writing an expository essay is not that difficult â€" you just need to get organized, plan your efforts, and not shy off research and hard work. With all those components, the result might be even better than you could expect.

Personality Is Developed From Genes ( Nature ) Or...

This paper explores the notion on whether a person’s personality is developed from genes (nature) or influenced by environment (nurture). Personality is something every human has and is an essential element in their social world. This research is important to know if, how, and why personalities change. Different scholarly-based material was used to support either stance on the issue. The articles and research helped to decipher the roles of parents, genes, biology, the environment, experiences, and culture in a person’s personality. Personality theories were inputted to come to a conclusion on the subject of interest that is derived from actions, emotions, and attitudes. Many contemporary psychologists have distinguished five clusters of personality traits called the Big Five. The results of the research from the paper identify the answer to the question about personality. The conclusion recognized that everybody has a different personality developed by different compon ents that includes both inherited traits and learned traits. Plus, how those traits modify personalities. The Origin of Personality: Nature or Nurture? Personality is debated over what factors influence and shape it the most. Is it a person’s nature including genes and temperament or nurture with the environment and culture? Do they both have an effect in the development of a personality? The main purpose of this research paper will address these questions and examine how these factors impact personalities.Show MoreRelatedNature Vs Nurture Theory Essay828 Words   |  4 PagesQ) What was the basis of doctors reasoning to raise David (named Bruce at birth) as a girl? Explain the doctors reasoning in relation to nature versus nurture theories. The phycologist recommended to David’s parents that they can raise David as a girl just by developing his identity as a feminine. The physiologist also recommended that the surgical process of constructing penis would be more difficult and risky for David than the surgical construction of a vagina. The psychologist explained to David’sRead MoreNature Vs. Nurture : A Debate Within Psychology1344 Words   |  6 PagesPSY 100 Nature Vs. Nurture There s a debate within psychology about whether certain aspects of behavior are genetic or learned characteristics. Certain physical characteristics are genetic, like color of eyes, hair type, and skin color. Other things like driving, talking, or tying your shoes are learned. People wonder if personality and mental abilities are genetic or learned. There are good arguments for both the nurture, and nature side of these three issues: intelligence, personality, and homosexualityRead MoreNature vs. Nurture1117 Words   |  5 PagesThe nature versus nurture debate is one of the oldest issues in sociology (Davidson, 1991, n.p.). The debate centers on the relative contributions of genetics and environmental factors to human behavior (Davidson, 1991, n.p.). Today, the majority of experts believe that behavior and development are influenced by both nature and nurture (Macionis, 2009, p. 73). The biggest question now is which one affects human development more: nature or nurture? According to Macionis (2009, p. 72), in the pastRead MoreHow Nature And Nurture Affect Human Development1203 Words   |  5 Pageslearning and many other things. Nature comes from biological factors, so this allows an individual to grow and develop through learning, although some factors do come under environmental. So nature and nurture does play similar roles within and against each other. Nature comes from birth and nurture at the same time does not come from birth as nurture does not inherit genes. Nurture is environmental factors. Despite everyone living in the same environment nurture does influence human developmentRead MoreThe Influential Difference Between Environment And Heredity1610 Words   |  7 PagesOur personalities have many traits, and these traits made us who we are. But that’s not the whole story about it. We are not just similar because we have the same traits, but we are also uniquely different from our environment and heredity causes, or maybe our f reewill and other unknown factors. Our personalities are so unique that we are the only person in this whole universe. No one else is the same, and even identical twins are different. We are us, and only us. So how does that work out? WhyRead MoreThe Nature Nurture Controversy : Biological Or Environmental Effects Of Iq, Personality And Behavioral Differences932 Words   |  4 PagesThe basic elements of the nature-nurture controversy, debates the genetic or environmental effects of IQ, personality and behavioral differences in humans. Nature describes an inherited trait, otherwise known as the genes, containing the genetic code for each individual born. These genes contribute the physical characteristics, for example: eye color, skin pigmentation, hair texture, blood type, longevity, etc. Genes impose certain diseases, such as Huntington s Chorea, Breast Cancer, Down SyndromeRead MoreThe Power of Nature and Nurture Essay1562 Words   |  7 Pages Noted psychologist Jerome Kagan once said Genes and family may determine the foundation of the house, but time and place determine its form (Moore 165). The debate on nature versus nurture has been a mystery for years, constantly begging the question of whether human behavior, ideas, and feelings are innate or learned over time. Nature, or genetic influences, are formed before birth and finely-tuned through early experiences. Genes are viewed as long and complicated chains that are present throughoutRead MoreNature Vs. Nurture : Human Behavior1453 Words   |  6 Pagesbehavior is determined by genes is ridiculous. Human behavior is not genetically pre-determined; rather, it is a result of environmental influences. The influences we surround ourselves with is how we are going conduct yourself. Humans are influenced by other humans. Our behavior is determined by who we want to be like and look up too and that has nothing to do with our genes. A human’s behavior is by choice no t inherited. Many people argue over this topic nature vs. nurture. According to GoodTherapyRead MoreThe Debate Between Nature Vs Nurture1697 Words   |  7 PagesWhat determines who you are or what you will become? The debate between nature versus nurture is trying to figure this out. According to â€Å"Essentials of Psychology†, Jeffrey S. Nevid (2012) Nature versus nurture is the debate about how genetics and nature determine our behavior. In other words, have your attitude, behavior and health problems developed because of how you were raised or who you came from. It is a debate that has stumped psychologists for centuries. The study of twins, both identicalRead MoreNature Vs. Nurture : Nature Versus Nurture Essay1939 Words   |  8 PagesNature versus Nurture You got your dark brown hair from your father and you got your looks from your mother, but where did you get your excitement for sports and your love for all animals? A person’s physical characteristics lean more towards genes and heredity, but our genes are not mentioned as much when behavior is the topic. This is how the nature versus nurture debate first began. Scientists who believe in the nature theory believe that people behave the way they do due to heredity and genes

Productive Strategies for School Paper Writing Services You Can Use Starting Immediately

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Enlightenment and Constitution Free Essays

Enlightenment and the Constitution The United States is a nation established in 1776 on a set of principles: liberty, equality, and self-government. These ideals derived in part from broad lessons of history, from the colonist, and treatises such as those of Locke and Rousseau. Liberty is a principle that individuals should be free to act and think as they choose, as long as their actions don’t infringe on the rights and freedoms of others. We will write a custom essay sample on Enlightenment and Constitution or any similar topic only for you Order Now Equality is a notion that all individuals are equal and entitled to equal treatment under the law. Self-government is the principle that the people are the ultimate source and proper beneficiary of governing authority. These principles were the foundation for the United States set forth and written by our founding fathers, but taken from rulers and minds of Europeans during the Enlightenment period. The Enlightenment was an eighteenth- century intellectual movement whose proponents believed that human beings could apply a critical, reasoning spirit to every problem (Hunt, Lynn, Martin Rosenwein, page 545). During this period the rulers, writers, and thinkers gave the back bone to the Declaration of Independence, the United States Constitution, and the Bill of Rights. Although before we get to this period and how it shaped the United States we will have to go back a little further to 1651. In 1651 an English philosopher Thomas Hobbes had his work Leviathan published. Hobbes argued that government rests on a social contract in which the people give up certain freedoms they would have in a state of nature in return for the protection that a sovereign ruler can provide. Almost a half of a century later, an English philosopher, John Locke, used Hobbes concept of social contract in his Second Treatise on Civil Government. Locke claimed that all individuals have certain inalienable rights, including those of life, liberty, and property. When people form a government for securing their safety, they retain these individual rights. However Locke saw the social contract a bit differently. The agreement to submit to governing authority is based on the premise that government will protect these rights, if the government fails to the people can overthrow the government and form a new one( Patterson,page 14-15, 30). Thomas Jefferson declared that Locke â€Å"was one of the three greatest men that ever lived. † Jefferson paraphrased Locke’s ideas in passages of the Declaration of Independence. Including those that, â€Å"all men are created equal,† that government derive â€Å"their just powers from the consent of the government,† and that â€Å"it is the right of the people to alter or abolish a tyrannical government. The Declaration was a call of revolution rather than a framework for government. However the ideas contained in the document: liverty, equality, individual rights, self-government became the basis for the Constitution of the United States (Patterson, page 30). In Voltaire’s, Treatise on Toleration and Jean Jacques Rousseau , Social Contract we find more Enlightenment thinkers ideas framed in the Constitution. The ideas the Constitution receives from these works are the basis for Amendment I, freedom of religion. Voltaire states in A Treatise on Tolertion,† Religion was instituted to make us happy in this life and in the other. † â€Å"Christians should tolerate each other. † â€Å"I, however, am going further: I say that we should regard all men as brothers, are we not all children of the same father and creatures of the same God? † Voltaire is setting the basis for freedom of religion, saying that the people must show Universal Tolerance for all. Rousseau takes it even further in The Social Contract. He states, â€Å"it is of importance to the State that each citizen should have a religion requiring his devotion to duty, however the dogmas of that religion are of no interest to the State. † Rousseau sets forth the idea that the government shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, as stated by the First Amendment of the Constitution. Finally Cesare Beccarria and Empress Catherine the Great both have an idea that resides in the Constitution. That idea is that all men are innocent until proven guilty. In Beccarria’s Crime and Punishment he states, â€Å"No man can be judged a criminal until he be found guilty: nor can society take from him the public protection until it have been proven that he has violated the conditions on which it was granted. Empress Catherine states in her Proposal for a New Legal Code in Russia, â€Å"No man ought to be looked upon as guilty, before he has received his judicial sentence; nor can the Laws deprive him of their protection when it is yet dubious, whether he is Innocent or Guilty?. The United States is a nation established in 1776 on a set of principles: liberty, equality, and self-government. These ideals derived in part from broad lessons of history, from the colonist, and treatises from the Enlightenment Period. Men and women from Voltaire, Jean Jacques Rousseau, Cesare Beccarria, and Empress Catherine the Great have given ideas that our founding fathers saw and deemed worthy to be put in the United States Constitution. Thomas Jeffers on himself based many ideas in the Declaration of Independence from concepts written by John Locke that became the basis for the Constitution of the United States. Where would the United States be without these enlightened minds from Europe? Works Cited Beccarria, Cesare, Crime and Punishment Catherine the Great, Proposal for a New Legal Code in Russia Hunt, Lynn, Thomas R. Martin and Barbara H. Rosenwein; The Making of the West Bedford/St. Matin’s, Boston, New York, 2009 Locke, John, Second Treatise Patterson, Thomas E. , The American Democracy, Mc Graw Hill, New York, NY, 2009 Rousseau, Jean Jacques, Social Contract Voltaire, Treatise on Toleration Europe? How to cite Enlightenment and Constitution, Papers

The Credit Rating Agencies, Their Role in the Financial Crisis and What Is Next free essay sample

I would also like to thank Northeastern University for allowing me to discover a new culture and a different educating system. It also had a tremendous role in my future accomplishment and professional career. In addition, I would like to thank all the professors I had during these four years of studying, whether it is at CESEM or at Northeastern University. They made this journey even more profitable and enjoyable. I would also like to thank David Menival, my thesis supervisor, who accepted to work with me on this project. Finally, I would like to thank my parents for always supporting my choices and being next to me when I needed them. They have been my guides and models in life and have always encouraged me to be better and push myself. Table of Content Introduction4 I. Credit Rating Agencies: Role and methods5 1) History5 2) Role and methods7 3) The Issuer-Payer model 9 II. We will write a custom essay sample on The Credit Rating Agencies, Their Role in the Financial Crisis and What Is Next? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The Credit Rating Agencies and the Financial Crisis: is the thermometer responsible for the fever? 12 1) Background of the financial Crisis12 2) Credit Rating Agency are not fully responsible†¦ 14 ) †¦But they could have done better17 III. What is next? 20 1) Lessons learned from the crisis 20 2) Regularization of the existing Credit Rating system 21 3) A new rating system23 4) Creation of new Credit Rating Agency24 Conclusion26 Exhibits27 Bibliography32 Introduction A credit rating agency is a company whose role is to evaluate the default risk of a borrower, whether it is a private or public company or a State. Since 1909, when Moody’s emitted its first rating, the role of the Credit Rating Agencies has considerably evolved and the methods used have improved. Even though their ratings do not constitute buying or selling recommendations, they rapidly gained an almost â€Å"biblical authority†. Since the 1980’s, the credit rating agencies have, indeed, become a reference for investors that want to determine the creditworthiness of an entity. Their ratings influence investors’ behaviors and they are indirectly involved in the future of a State or company. After several economic meltdowns and the recent financial crisis, the three big Credit Rating Agencies have been the center of attention. Is their methodology appropriate to evaluate the creditworthiness of an entity? Does the issuer-payer model insure the best transparence? Their role and implications in the crisis have been meticulously examined and their functioning system has been questioned. Although their role in the crisis in undeniable, are the only responsible of the crisis? The system was defaulting and the predictions of the credit rating agencies turned out to be wrong. Which modifications should we bring to the system to make it more transparent and efficient? These are the questions we will try to answer throughout this thesis. I. Credit ratings agencies: role and methods Credit Ratings agencies, entity still little known outside the financial communities two years ago, found themselves at the center of attention with the subprime crisis. If everyone more or less gets, now, familiar with what a credit rating agency is, people usually do not know what are the origins of this business, its rationale and its financing model. 1) History The influence of the three main credit rating agencies (Moody’s, Standard amp; Poor’s and Fitch Ratings) was build step by step since their inception, in the early 1900’s. Historically, the ratings issued by the agencies did not have more value than the ones given by analysts or economic experts. They acquired this particular status when legislators and regulators attributed them a bigger place in their systems. The development of railroads companies marked the origin of these â€Å"Big Three†. These railroad companies were indeed fluctuating and needed nvestments to set up their infrastructures. As investors were concerned and questioned their capacity to reimburse their debts, Henry Varnum Poor published, in 1860, some financial information regarding the creditworthiness of those companies in order to help investors make their decision. Later on, in 1900, John Moody would also start publishing economic data on these companies and finally, in 1909, J. Moo dy gave his first ratings about railroad companies in â€Å"Moodys Analyses of Railroad Investments by attributing a letter to each of them; the credit rating was born. This system was progressively adopted by others credit rating agencies such as Fitch Publishing Company, founded in 1913 by John Knowles Fitch, which would later be known as Fitch Ratings. Finally, Less than thirty years later, the credit rating agency Standard amp; Poor’s is created after the merger of the Standard’s Statistic Bureau and the Poor’s Publishing Company. The development of the ratings is stimulated by several factors. First, its goal is to offer a service for investors by providing useful information that will help them in their decision-making process. In addition, the relative large size of the American territory discourage investors to search for information, they would rather pay for it than waste time looking for it. Moreover, the repercussions of the 1929 financial crisis and the consequences of the World War II, giving supremacy to the Economy of the United States, also favored the expansion of the concept of rating. In 1970, after the bankruptcy of Penn Central Railroad, the first doubts regarding the independence of the credit rating agencies appeared. This was the first time that the reliability and seriousness of the ratings were questioned. In order to reestablish the value of the ratings, the SEC (Securities Exchange Commission) created, in 1975, the â€Å"Nationally Recognized Statistical Rating Organization† (NRSRO) designation. The goal was to standardize and formalize the ratings regarding brokerage firms and banks with their capital ratios. At that time, seven agencies obtained the NRSRO designation. In 1990, after several new mergers, the number of NRSRO was only of three: Moody’s investor service, Standard and Poor’s and Fitch Ratings. In 2003, the Canadian agency Dominion Bond Ratings service Ltd also ained the status of NRSRO, followed by A. M Best Company in 2005. In June 2003, after the disorders caused by the bankruptcy of the company Enron, the regulation of the credit rating agencies and their NRSRO status needed to be examined. Multiple reports on the role played by the agencies in this case were published. Even though investors lost faith in them, they all agreed that they should ke ep the NRSRO status. In 2006, after years of critics toward the credit rating agencies, the functioning rules of the NRSROs were modified and the Credit Rating Agency Reform Act was promulgated. The objective was to regulate the internal decision process of the credit rating agencies while forbidding the SEC to control the rating system of NRSROs. Right after, in 2007, three more companies were added to the list of NRSROs: Japan Credit Rating Ltd, Rating amp; Investment Information Inc. and Egan-Jones Rating Company. Since April 2011, the list of agencies that received the NRSRO status counts ten names (See Exhibit 1, page 27). Finally, in July 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act reinforced the control over the ratings’ practices. This included a reduction of the conflicts of interest regarding the ratings of structured products and decreased dependence on ratings. It also allowed investors to sue a credit rating agency in case of fake or reckless rating. For decades, the three main agencies, Moody’s, Standard and Poor’s and Fitch Ratings, have been controlling the market, as high barriers to enter exist. The major ones are the importance of the reputation and the investors’ confidence in their ratings. Since their creation, these agencies have distinguished themselves with a particular role and specific methods. ) Role and Methods The Credit Rating Agencies evaluate the creditworthiness of debtors. Ratings can concern a company as well as a particular emission or securitization or any financial debt. They are usually solicited by the debt issuer but can also be attributed, if non-requested, after collecting public information. Credit Rating Agencies enjoyed a good reputation and an essent ial role in the financing of economies. Over time, regulators, for practical reasons, tried more and more to impose the use of the notation in the investors’ financing. This long-term trend follows upon the systematic financing by the market, whether it is in a simple formulation taking the shape of debenture or assimilated loans or new products where the risk of defect is difficult to comprehend because it is diffuse in complex financing methods such as the securitizations. Credit Rating Agencies have the role of processing the information for financial markets. They synthesize the information for market needs and the investors seemed to excessively grant their confidence to this information. Investors pay close attention to any modifications in ratings or to any entities placed â€Å"under observation†. The ratings issued by the credit rating agencies have a trustworthy value. Since investors usually do not take the time to look for information regarding a company or a State, they based their investment choices upon the rating given by the credit rating agencies. Therefore, the role of the credit rating agencies is essential. Basically, these agencies summarize all information available about a company or State and turn it into a rating that will then influence the future of an entity. However, it is necessary to underline that the ratings given are not buying or selling recommendations, they are only an evaluation of the creditworthiness of an entity, at a defined time, and statically calculated. Next to this informative participation, credit rating agencies contribute to the management of portfolios by giving advice to the investors via the medium-term orientations emitted with the rating. If a company tries to finance itself, the received grading will be determining for the conditions of the operation. Whether it is by financing through banks or by issuing bonds on the market, the more the grade will be raised, the more the company will be able to find cheap funds at low interest rates. On the other hand, a bad grade will imply higher interest rates and difficulties to find financing. The difference of levels between both interest rates will constitute the risk premium. This problem becomes particularly important for companies or States located within the â€Å"speculative† category. Major institutional investors do not want, indeed, to take the risk and, therefore, do not invest on these kinds of values. However, the rating is ot fixed and fluctuates throughout the life of the bonds. A decrease of the rating can lower the price of the bond. Likewise, a raise of the rating can be associated to an increased price of the bond. In order to correctly determine the default risk, Credit Rating Agencies use diverse quantitative and qualitative criteria that they translate into a gr ade. Credit Rating Agencies distinguish two types of ratings: short and long-term; the traditional rating that applies to loans emitted on the market and the reference rating that measures the risk of counterparty for the investor represented by this issuer. When evaluating the financial risk, credit rating agencies first take into consideration purely financial numbers such as the profitability, the return on investment, the level of cash flows and debt, the financial flexibility and the liquidity. More and more, the agencies integrate non-quantitative elements such as the governance, the social responsibility of the company and its strategy. It is also necessary to highlight the fact that the rating is usually associated with medium-term orientation, allowing to better estimate the future trend regarding the quality of the issuer. In some cases, a borrower can be placed â€Å"under observation†. The main steps in a company’s life (mergers, acquisitions, big investments†¦) are indeed, likely to influence and modify their structure. Credit rating agencies, subject to preserving the confidentiality of the received information and avoiding cases of insider trading, can have insider information on the financial state and the future prospects of the analyzed issuer, while reducing the cost of collection and data processing. They distinguish themselves from financial analysts, who, in principle, only have access to the public information. Even if they can benefit from insider information on behalf of issuers, they are dependent on the information provided by these issuers. Each Credit Rating Agency possesses its own rating system. In broad outline, grades are established from A to D with intermediary levels. Thus, the best grade is AAA, then AA and A for Standard and Poor’s or Aa, A, etc. for Moody’s. In addition, we can also find intermediate ratings; a â€Å"+† or a â€Å"-â€Å" but also a â€Å"1† or a â€Å"2† can indeed be added to the grade (e. g. AA+, A-, Aa2, etc. ). This allows a better and more precise classification of borrowers. These different ratings can be divided in two groups: the first category, â€Å"High Grade† includes all ratings between AAA and BBB and the second category, also known as â€Å"speculative†, for inferior grades. (See Exhibit 2, page 28) The biggest advantage of this system is to provide information at low costs for potential investors. Thanks to an easily understandable grade, but incorporating a vast amount of information, investors can quickly have an idea of the creditworthiness of a borrower. The ratings issued by these agencies are a more and more useful tool in the decision-making process of investors looking for relevant information. Current regulation obliges them to certify published information. As we have previously seen with the United States or Greece, the market strongly reacts and sometimes irrationally to any modification of a rating or to a simple announcement of a hypothetical revision. Credit Rating agencies have a real influence on markets. The impact of their decision on issuers and investors is decisive. On the contrary, an excessive reaction was completely predictable in front of their incapacity to forecast the financial crises of these last decades. 3) The issuer-payer model For more than half a century, investors that paid to obtain financial information about loan issuers financed the credit rating agencies. Thus, companies, local communities, States were given a rating, without asking for one or without their consents, but to answer to requests from bankers or investors that were holding these funds. Naturally, these â€Å"non-requested† ratings were only based on public information concerning such or such company. The Credit Rating Agencies sold their publications to bankers and capital holders who were looking for potential adequate investments. In addition to selling these â€Å"manuals†, the credit rating agencies could also offer others services to investors (weekly information about financial results of rated companies, actualization of the ratings, recommendations and advices of purchase and/or sell). However, the agencies will lose some profits as some investors managed to have the information and the manuals without paying for them. As from the beginning of the 1970s, Credit Rating Agencies started to charge their services to the issuers of bonded debt. This is the issuer-payer model. These issuers of debt (Companies or communities looking for investment) began to more and more directly solicit the agencies in order to obtain a rating. They believed that this rating would reassure investors during a slowdown of economic growth. Thus, from now on, it is more often the issuers of debts that will request a rating from the credit rating agencies to get an evaluation from them that would allow them to access to credit. This approach contributed widely to consolidate the place of the Credit Rating agencies and to legitimize their intervention. In fact, this translates well a swing of the balance of power between those who look for funds to invest in industrial projects and those who hold funds, while waiting for the best yield at the slightest risk. In a world highly regulated by finance, where pensioners and holders of capital are in a strong position, and where industrial and direct investors are in a position of requestors, it is now, more often, issuers who wish to borrow and will ask to be noted, that will pay the credit rating agencies for their services. This shift from an investor-payer model to an issuer-payer model compromised the independence of the credit rating agencies. In fact, in 2011, only 10% of the revenue of the agencies came from funds’ holders who wanted to know more about the validity, the risk and the potential profitability of an investment. From now on, the ones looking for capital are the ones financing 90% the credit rating agencies. The issuer-payer model strongly modifies the situation of the credit rating agencies. In this situation, the rating agency is used, and paid, by the market player who wishes to be noted to then be able to hope to obtain capital on financial markets. The question of the independence of the agency in its rating process is then very directly put: the rating agency will be inclined to note well a company which pays her to then try to obtain capital in good conditions on behalf of miscellaneous investors. However, the market has faith in this independence since a credit rating agency has to protect its reputation, and thus an agency could not take the risk of over evaluating one of its customers by fear of losing its credibility and thus all business. Credit Rating Agencies seem, indeed, more and more subjected to conflicts of interests, which decrease their reliability. The issuers pay the agencies to be noted, while credit rating agencies need the revenues from these same issuers. Besides, more and more often, the credit rating agencies mix two activities: consulting and rating. Therefore, in addition to evaluating a company, an agency also advises on current operations. A study for the SEC in 2008 revealed that some analysts from certain agencies participated in meetings between investors and issuers in which commission and rating were fixed. These conflict of interest generated criticisms and accusations against credit rating agencies and especially during the recent financial crisis. As the credit rating agencies were essential and indispensable to any players on the market that wanted either to invest or to find capital, they were at the heart of the upheaval. II. The Credit Rating Agencies and the Financial Crisis: is the thermometer responsible for the fever? In order to determine the responsibility that the credit rating agencies have in the financial crisis of 2008, it is necessary to understand how the crisis happened, which events punctuated it and what has been the behavior of the rating agencies throughout the crisis. 1) Background of the Financial Crisis Everything started when the American housing market suddenly collapsed after a steady rise in the 2000 years. To finance their consumption and acquisition of a house, American households did not hesitate to get into very high debts. The market was booming so there was a trust in the ability to get its money back with a substantial profit. As counterparty, they pawn their properties. This was a guaranty for banks to be paid because if the borrower could not reimburse what he owed, his property would be sold to honor his debt. When the phenomenon grows and affects a large number of households, the sale of their property causes the collapse of the value of the property. The downturn of the housing market was reinforced by the subprime system. Since 2002, the American Federal Reserve, which encouraged easy credit to boost the economy, allowed millions of households to become homeowners thanks to premium loans called subprime, with variable interest rates that can reach 18% after three years. These interest rates are fixed according to the value of the property; the greater the value, the lower the rate and vice versa. That is what happened when the housing market collapsed in the United States in the beginning of 2007. Households, lacking of ways to reimburse their debts to lenders, have caused the bankruptcy of several credit institutions that could not repay themselves since even when taking on the property, this one has a lower value than initially. Finally, banks were also touched by this phenomenon. They have indeed been numerous to invest in these lending institutions. Nevertheless, today, invested funds are gone. In order to compensate these losses on the housing market, banks were forced to sell their shares, leading to a decrease of their values on the financial markets. The crisis quickly expanded in Europe, where major European banks such as Dexia in France and Benelux or IKB in Germany lost a fair part of their investments. Besides, the bankruptcy of several European banks led to a confidence crisis on European financial markets. Banks have doubts about each other’s contamination by the subprime crisis and therefore, to be cautious, refused to lend money. Since international banks are linked to each other through financial agreements, the crisis rapidly extended, to reach Asia during the summer 2007. Only one solution seemed conceivable for banking institutions to face this lack of liquidity: sell their shares and bonds. This fast and quick intervention caused a sharp drop in stock value and all the European stock markets were affected (See Exhibits 3 and 4, page 29-30). In order to appease the crisis on the markets but also to bail out banks, the American Federal Reserve (FED) and the Central European Bank (CEB) decided to inject liquidity in the monetary system, hoping to gain back the confidence of investors to help stabilize the situation. On 9 August 2007, the CEB acted first by making available 94. 8 billion euros to banks, followed shortly by the FED which injected $24 billion to appease the spirits of investors. However, markets initially misinterpreted the message, considering their involvement as a sign of weakness. The next day, the CEB injected again 61 billion euros and the FED, $35 billion, but the markets felt down again. Finally, on August 13, 2007, the same action was repeated and the monetary market as well as stock markets around the world kept their heads above water. While it seemed like the financial crisis was faded away at the end of 2007, a second wave of crisis appeared from the banking sector at the beginning of 2008. This was due to the creation of new products such as residential mortgage-backed securities (RMBS), Asset-backed Securities (ABS). In fact, credit risk, such as subprime mortgages, were pooled and backed by other assets, more or less risky, in Collateralized Debt Obligations (CDO) (See Exhibit 5, pages 31). These clusters of scattered debts were then sold on the stock exchange by the issuer, like shares of a company could be given up. This results in the transfer of the risk of non-payment from issuers of mortgages to financial institutions: in particular banks, major consumers of CDO. In order to invest on the CDO market, some financial organisms went even further and created Structured Investment Vehicles (SIV) that did not have to respect the usual rules of prudence of the banking system. This amplified the risks taken and losses impacted on the performance of the bank. Other new products were also created such as Credit Default Swap (CDS), an insurance contract between two entities against a risk faced by one of two entities, such as the non-payment of a debt. The price of the CDS reflects the confidence in a particular issuer of a debt and is the basis for determining the value of the product of the debt. The crisis took a new dimension on September 15, 2008 with the bankruptcy of Lehman Brothers and AIG (narrowly saved by the Fed), as well as several American and European banks (HBOS in United Kingdom, Fortis in Europe, Dexia in France and Belgium, etc. ). This international and financial crisis still has repercussions on today’s stock markets and the end of the tunnel seems far away. The question raised here is the role played by the Credit Rating agencies in the crisis. Are they the only ones to blame for everything that happened? Are the actions intended by the rating agencies responsible for the crisis? 2) The credit Rating Agencies are not fully responsible†¦ Ever since the crisis, the credit rating agencies have been easy targets to blame for what happened in 2007 and the years after. Effectively they did not anticipate the downturn of the market, they continued to attribute good rating to banking institutions already hurt by the crisis with an increasing book of bad loans or bad papers that banks will have to deleverage. Many criticisms have been emitted about toward them. However, it is important to point out that they are not the ones and only responsible for what happened. They did not have power over a lot of factors that went wrong, and for that they cannot be the only to take the fault in the financial crisis. The thermometer could not be responsible for the fever. First of all, they are not responsible for the bankers or mortgage brokers who gave loans unwisely. These institutions lacked of common sense and thinking when offering credits. Banks and managers perfectly knew that unemployed borrowers would never be able to reimburse their mortgages. They have, indeed, disproportionately opened the gates of credit by taking for guarantee, when they did take some, the increase of real estate prices or their trust in the growth of the economy. They thought that they could make benefits if the debtor did not pay, as they believed that they could force the sale of the house for a higher price. However, real estate prices always end up going down and the economy is fluctuating. In an attempt to reduce the risk of these new kinds of loans, banks used securitization; they transformed these loans and resold them on the stock market. Therefore, mortgages securitizers are also to blame. Some companies such as Washington Mutual, Morgan Stanley or Bank of America were mortgages originators as well as mortgage securitizers, other like Goldman Sachs, Lehman Brothers and Bears Stearns bought mortgages directly to subprime lenders and pooled them together to resell them to investors. However, as soon as a debtor was not able to pay back his mortgages, the security became toxic and had no more value. Nevertheless, this was not the last step. Some banks would buy and bundled mortgage backed-securities into collateralized debt obligations, composed of different levels of risk. The creators of these new financial products are also responsible for the crisis. They bet against these risky CDOs by using credit default swap. (See exhibit 5) Government Sponsored Enterprises (GSEs) could also be blame for what happened. They indeed, control the mortgage market. When a bank or a mortgage broker wanted to take off his books a loan, it could sell it to a GSE, which led to a higher number of mortgages. Fannie Mae and Freddie Mac are the two major GSEs. Alone, they own or guarantee half of the current mortgages. With their â€Å"government status†, investors can buy those bonds while asking for a low interest rate in return, as federal government bonds have the safest credit rating in the world. As long as debtors paid back their mortgages, Fannie Mae and Freddie Mac would be able to pay their creditors too. However, as these loans where often given out, even to people we knew could not reimburse, GSEs had to assume the risk. Therefore, we could also say that investors could be blamed for the role they played. They bought and invest in financial products they did not know about. They should have conducted researches about what they were purchasing and should have known these were subprime and meant a higher risk of non-payment. However, we have to see the bigger picture. At that time, banks received pressure from higher instances to encourage homeownership and so, to grant loans to the poorest population. The government wanted households with a less comfortable life to be able to buy their own house. The pressure that was put on the banks â€Å"forced† them to give mortgages to debtors that would ikely not pay back. This being said, borrowers are also responsible for contracting loans that they pertinently knew they could not afford. Moreover, the credit rating agencies are also not responsible for the debt of the countries. They have often been accused to do be the reason for the deficit of some countries such as Greece. Nevertheless, Greece has always had a huge deficit. They neve r had a break-even budget in 150 years, and governments from left to right parties systematically laid about the finance of the country. In addition, the national sport is not the Greco/Roman wrestling or the Marathon but how to avoid paying taxes; nothing in which the rating agencies were involved. Furthermore, regulators could have also done a better job to prevent the crisis. In the United States, several regulators exist and each of them has a specific area of expertise. The regulation of the banking sector is shared between the Federal Reserve (Fed), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (which guarantees the deposits of bank customers) and the Office of the Thrift Supervision (OTS). There is also The Securities and Exchange Commission (SEC) that is responsible for the supervision of stock exchanges. The Financial Industry Regulatory Authority provides the regulation of brokerage activities. Finally, the Commodity Futures Trading Commission (CFTC) insures the regulation of futures and options markets. This various regulators could have acted to appease the situation. The SEC could have, indeed, regulate lending practices at banks and force them to keep more capital reserves in case of losses. The Federal Reserve could have contained the housing bubble by setting safer mortgages lending standards, which it failed to do and especially when Alan Greenspan who was the head of the FED, refused to improve the examination of the subprime mortgage market. Finally, according to the Financial Crisis Inquiry Report, executives in the main investment banks did not hold enough capital to be fully protected against losses. Some companies, such as Lehman brothers or Citigroup would just hide bad investments off their books. It is mainly a problem related to the liquidity crisis that led to the bankruptcy of Lehman Brothers. Lehman Brothers, indeed, financed itself on the short-term and lend on the long-term. When the source of the financing dried up (banks did not trust each others by fear of not being paid off), Lehman found himself stuck and was enabled to face its commitments. If the credit rating agencies were not responsible for the mortgage originators or securitizers, the creation of the CDO, the regulators or the executives of the investment banks, they surely played a tremendous role in the crisis ) †¦But they could have done better The credit rating agencies are responsible for a lot in the financial crisis. Several aspects of their business as well as the actions they have done have been pointed out as the main cause of the crisis. First of all, the pertinence of their business model was questioned, among others the oligopolistic situation of the market and the conflict of interest creat ed by the issuer-payer model. The â€Å"Big Three† (Standard amp; Poor’s, Moody’s and Fitch Ratings) generate 95% of the $6 billion market that the rating business represents. These three agencies dominate the market and adopt similar methodologies and practices. The business model of the rating agencies establishes itself on the independence and the credibility granted by the financial markets and the authorities of supervision. That is why, in the absence of statutory reforms and / or of the desertion of numerous customers, the leadership of the â€Å"Big Three† will be maintained, protected by strong barriers of entry (reforms difficult to set up and loyalty of issuers often connected to the heaviness of the rating process). Besides, the oligopolistic situation is strengthened by a consolidation, on the initiative and thus for the benefit of the â€Å"Big Three†. So, Fitch acquired in June 2000 the fourth American rating agency, Duff and Phelps, and in December 2000 Thomson BankWatch. At the beginning of 2006, Fimalac gave up 20 % of Fitch Group (who, herself, holds Fitch Ratings, Fitch Training and Algorithmics, this last company having been acquired in 2005) to Hearst Corporation. Likewise, the French subsidiary of Standard amp; Poor’s acquired ADEF (Agency of Financial Evaluation). Another reason why the credit rating agencies played an important role in the financial crisis is because of the conflicts of interest they were facing with the issuers. If some say that these conflicts of interest were of minor importance since there are always conflicts of interest in relationships, in that case, it had serious consequences on the global economy, as they are one of the causes of the subprime crisis in 2008. It is, indeed, the issuer that pays the rating agency so that this one estimates its capacity to pay off its debt. It is thus relevant to wonder about the partiality and the objectivity of the rating agencies which find themselves at the same time judge and judged and which can be inclined to note well its customers to keep their market share. Besides, the transparency that the rating agencies show in their methodologies and during their changes of ratings is unreliable as far as these sudden reversals seemed to have destabilized the markets. The three major credit rating agencies also contribute to worsen the financial crisis by their practices. They were, indeed, a key factor in the financial meltdown. They attributed a rating to every products offered on the stock market. Even mortgage-related securities received a good grade, which made it easier to market and sell them. As we have seen previously, the ratings that they gave had an almost â€Å"biblical authority†, so investors trusted the rating agencies to be fair and to give relevant grade to each product and did not conduct further investigation regarding their investment. Credit Rating Agencies were necessary to the mortgage-backed securities market; each actor in the process needed them: The issuers, to approve the structure of their deal The banks, to determine what capital to hold The investors, to know what to buy Since 1970, when the credit rating agencies got the status of NRSRO, the SEC decided to base the capital requirements for banks on the grades given by the rating agencies. This is also included into the banking capital regulations as the recourse rule, which allows banks to hold less capital for higher -rated securities. The SEC also prevented money market funds to buy securities that did not receive ratings from at least two NRSROs. Without these good ratings, banks would not have been able to place these financial products so easily onto financial markets, and the investors would have never bought them. Theirs ratings helped the market to go up rapidly and their downgrades between 2007 and 2008 wreaked havoc across markets and firms. These ratings, especially the ones for the mortgage-backed securities, appeared to have been very optimistic. But what we could observe, throughout the crisis, is the gregarious reflex of the credit rating agencies. They usually agreed on the ratings and when one of them downgraded a security, a company or even a State, the others would usually follow and did the same thing. As we have seen, the Credit Rating Agencies have indeed played an important role in the financial crisis. However, they are not the only one to blame. Thus, we can say that the thermometer is not responsible for the crisis but it could have given a better temperature of the situation. III. What is next? As we discussed, the credit rating agencies have been criticized a lot during the crisis and some flaws of them have been pointed out. In order to improve their efficiency, it is important to understand what we have learned from the crisis and then propose a better regulation or an alternative to the Big Three. 1) Lessons learned from the Financial Crisis The first lesson learned from the crisis is the impact of the globalization of financial markets. This has linked countries together in a greater extent than they were before. That is why, in today’s economy, any crisis that hits a main country or group of countries will have repercussion on all other countries. The financial crisis of 2008, started in the United States with the subprime bubble. Then it grew bigger and affected the rest of the world almost immediately compared to the 1929 crisis which also had worldwide impact but more gradually. We have to keep into consideration this new factor and realize that globalization plays an important role in the current worldwide economy. In addition, a country and its financial system need to be better prepared to face the crisis, in order to limit economic and financial damages. This means having a sound and well-regulated environment, keeping its inflation rate low, its exchange rate flexible, and its debt position sustainable. By doing that, a country would limit its vulnerability in front of any financial crisis. Moreover, the country should use fiscal and monetary policies to be able react quickly in case of external shocks. Another lesson learned is the question of the financial supervision. The global crisis is a crisis of confidence, which must impose rules on investment in the financial market, such as CDS (Credit Default Swaps) and short-selling of securities, clearing of OTC derivatives to reduce risks, CSD (Central settlement and Depository) regulation to protect investors and also Hedge Funds transparency. In macroeconomics, monitoring means imposing laws and rules on a structure with what is called the invisible hand. In our case, the invisible hand is the World Bank and the International Monetary Fund and the States, which have full power to intervene and better regulate transactions in the financial markets. This crisis also revealed some weaknesses regarding risk planning. Research based on various methods, including country case studies, confirmed that the more the planning is important, the more the quality of the financial services of a country is raised and more the financial intermediation is efficient. The planning of the risks led a certain number of countries to revise their financial structures to adapt itself to the global economic transformations. Finally, we can say that every good thing comes to an end, positive times do not last forever and the end is most likely going to be painful. In today’s financial system and global economy, we cannot avoid financial crisis, we can just hope that enough efforts will be done to improve our financial system and to limit the impacts of future crisis on our economy. If we focus on Credit Rating Agencies, to have a sound environment, it is worth considering a better regularization of our existing Credit Rating system, a new and improved rating system or the promotion of totally new credit rating agencies. 2) Regularization of our existing Credit rating system After the dysfunction of our system translated for instance into the collapse of Lehman Brothers, the disappearance of famous institutions such as Bear Sterns or Merrill Lynch, G7 members stressed the financial industry to improve its functioning mode and enhance the regulation. Several critics have indeed been directed to the credit rating agencies regarding the methodologies used by those agencies (including the growing place of the so-called political factors), the lack of transparency of their decisions, the rudimentary explanation accompanying the changes in notation, the moments selected to realize their announcements of ratings and finally, the potential conflicts of interest. All these aspects need to be taken into consideration when aiming to regulate the rating agencies. Various reform proposals have been recommended. Among them, you find some proposing the suppression of the government’s influence over this industry, or even the creation of a completely government-sponsored rating entity. However, the final goal is the accuracy of the credit rating. The first main step toward a better regulation happened in 2006, when a new section to the Securities Exchange Act has been added. The objective was to â€Å"improve rating quality for the protection of investors and in the public interest by fostering accountability, transparency, and competition in the credit rating industry† (ANNUAL SEC REPORT, supra note 22, at 16). The market is an oligopoly; the Big Three set the tone for the rest of the industry. Encouraging competition should give more choices to investors, at a lower cost and with better quality ratings. Several rules were added along the way, especially in 2009, when the SEC’s new rule addressed conflicts of interest, fostered competition and required detailed disclosure. For example, a NRSRO could not anymore issue a rating in which it had advised the bank or the issuer for the structure of the product. Another change emerged from the Dodd-Frank Act, in 2010, where a whole chapter has been dedicated to the rating agencies: â€Å"improvements to the regulation of the Credit Rating Agencies†. The Dodd-Frank Act qualified the agencies as â€Å"gatekeepers† for the debt market and that is why they needed â€Å"public oversight and accountability†. This meant reducing the investors’ reliance on ratings by limiting references to NRSRO ratings from rules, increasing the liability exposure, maintaining and informing on the structure of the ratings, as well as filing control reports yearly. However, both of these new reforms showed weaknesses, particularly in addressing the conflicts interest coming from the issuer-payer model, or the oligopoly. As mentioned before, several proposals would appear more efficient to answer these problems. The first proposal would be the elimination of the NRSRO status, which would remove any regulatory reliance on the ratings. This would also drive prices down as there would be an increasing competition, but it would also improve the rating quality and the innovation. Nevertheless, this proposal would lead to a total revision of the entire bank regulatory system and could also increase the pressure to satisfy issuers. The second proposal was to create a totally government-sponsored rating industry. This would make the rating a public good, eliminating any conflicts of interest due to the issuer-payer model. Although appealing because it resolves one of the main critics emitted during the financial crisis, it does not say who is going to pay for the subsidization. Finally, another more recent proposal called â€Å"disclose or disgorge† asks for the agencies to disclose the quality of the ratings they give, which means disclose to the public when a rating is â€Å"low quality† or disgorge benefits made with the rating. However, charging penalties would increase the barriers of entry on this market and discourage potential NRSROs. The rating business faces two major problems, the oligopolistic situation of the market that is being maintained by an increased regulation that secures the Big Three, and the issuer-payer model that fosters the conflicts of interest. Even though several reform proposals have been suggested, none appears to be totally conceivable. 3) A new rating system We have seen that a lot of reform proposals exist in order to enhance and increase regulation of the rating system. These proposals, indeed, reveal that some aspects of this business need to be improved. Eventually, a new rating system is worth considering. First of all, we have realized already touch based, throughout this analysis that the business model of the credit rating agencies needs to be modified, especially the issuer-payer model. The fact that the issuer is the one that pay the agencies for their ratings creates a conflict of interest that has to go away to insure an accurate and objective rating. In order to solve this issue, a new model is necessary. A possible idea to get there would be to make, not the issuer, but the investors (the ones that want to know the rating of a company or an entity) to finance the credit rating agencies. It is indeed them that need to know the rating of an entity, so it would be fair for them to pay in order to know what they are investing in. This would solved the problems related to the conflict of interest as rating agencies will not be tempted to give a good grade just to satisfy the client and avoid loosing profits. This was actually the model that existed before 1970, when the issuer-payer model was established. The shift to a model investor-payer would constitute a deep change for the whole rating industry but would eliminate the conflicts of interest. Another change that would be conceivable would be to set up a â€Å"rating planning†. The credit rating agencies should emit their grading at a known rhythm. Therefore, companies or States would know when they would be rated. For example, every January 1st, they could give their ratings for all entities. This would avoid sudden downgrades as we saw during the crisis, where rating agencies lowered the rating of a company right before it went bankrupt. Furthermore, to improve the accuracy of the ratings, a distinction between the rating of a company and a State should be made. In fact, Credit rating agencies do not evaluate the same thing when rating a country or a firm. That is why different ratings should be given according to the nature of the entity. Finally, this new rating system should have a better transparency of ratings. As this has often been reproach to the agencies, it is clear that we need to improve it. In order to get more transparency in the ratings, the credit rating agencies should be forced to make public some criteria that contributed to the rating process. In addition, when an entity is downgraded, there is ever a clear explanation. An explicit and standard comment should go along with the new ratings to explain the cause of the downgrade or upgrade. All these improvements should be made to obtain a more transparent and accurate rating. These changes could lead to more efficient and regular ratings where conflicts of interest would be inexistent and where the distinction between entities would improve the relevance of the ratings. 4) Creation of a new credit rating agency Finally, another solution that arises would be the creation of a new rating agency. This proposition is particularly discussed in Europe. The arguments called in favor of the creation of a European rating agency are multiple. It would be a question, first of all, of introducing more competition into a sector that is today dominated by three major actors. Standard and Poors, Moody’s and Fitch Ratings are indeed sharing more than 90 % of the market, a situation which confers to the members of this Big Three a tremendous capacity of influence. To create a new rating agency would be a way of having a bigger diversity of points of view. The trust that would be granted by the investors to a new European agency would depend however on its capacity to avoid the criticism sent to Big Three in terms of independence and conflict of interest. It would also be necessary to specify the status of the new agency: a public or a private organization? A public rating agency could face the mistrust of the investors, who could doubt its independence towards public authorities and States, which it would have the mission to evaluate. On the other hand, a private agency would look like a non-profit foundation. The rating agency would be financed by the investors who would use its notations, and not by the entities emitting the financial products, which would allow guaranteeing its independence. Nevertheless, the future prospects of such a structure remain uncertain: to what extent would it be able to impose itself in front of Big Three, in a sector where the experience and the reputation of the institution play a determining role? In addition, a history of ratings would be necessary to evaluate the evolution of an entity and a strict method is mandatory for accurate rating. A new rating agency would not be able to have all of these factors before several years. To conclude, it is not easy to find the best solution to improve the current rating methods. Different regulations have been tried, all presenting good points but also flaws. However, what we need to enhance is clear: better transparency, a more accurate rating and a suppression of the conflicts of interest. Conclusion The role of the credit rating agencies in today’s economy is crucial. They evaluate the creditworthiness of an entity, influencing investors and interest rates. However, during the crisis, their role has been criticized. Several factors can explain their controversial position. The oligopolistic situation of the market, their supposedly trustworthy evaluations given by their NRSRO status, as well as the conflicts of interest coming from their issuer-payer model are the main causes of the critics emitted toward them. Recently, the American justice even pressed charges against the rating agencies for their role in the crisis and asked for five billion dollars. Nevertheless, even if the credit rating agencies are the ideal responsible, they are not the only ones to blame. Now that the crisis revealed the different flaws of their system, we can only improve them going forward. Several regulations have already been approved and others are still under consideration. Other ideas to enhance the rating system include a new financing model, by perhaps considering going back to the investor-payer model, a better transparency of their rating, by showing the criteria used for their ratings, and a distinction between a company or a security and a State, which are two completely different entities. Lastly, we can wonder if the Credit Rating agencies still have as much influence as they used to. For instance, when downgrading both the United States and France, the repercussions were minors even nonexistent. The lost of their triple A did not bring the interest rates up as it should have, since today the interest rates are historically low in both these countries. Exhibits Exhibit 1 Credit Rating Agencies with the NRSRO designation Exhibits Exhibit 2 Rating systems of the Big Three Source: Credit rating Wikipedia, the free encyclopedia.   Wikipedia, the free encyclopedia. N. p. , 7 Mar. 2013. Web. 13 Mar. 2013. lt;http://en. wikipedia. org/wiki/Credit_ratinggt;. Exhibits Exhibit 3 – Important facts about the crisis Exhibits Exhibit 4 – Evolution of market indexes from August 9 to 16, 2007 Index| Evolution| Dax (Germany)| -4,42%| Dow Jones (USA)| -5,95%| Nasdaq (USA)| -6,16%| FTSE 100 (United Kingdom)|   8,37 %| CAC 40 (France)| -8,42%| Nikkei (Japan)| -10,3%| Exhibits Exhibit 5 – Residential Mortgage-backed securities These tranches were often purchased by CDOs These tranches were often purchased by CDOs Source: The financial crisis inquiry report: final report of the National Commission on the Causes of the Financial and Economic Crisis in the United States. Official government ed. Washington, DC: Financial Crisis Inquiry Commission :, 2011. Print Bibliography * Dupuy, Claude . La crise financiere 2007-2008 Les raisons du desordre mondial C. francetv education la plateforme des parents, eleves et enseignants. N. p. , n. d. 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