Abstract
This paper presents a study of the role of the rating agencies during the 2008 financial crisis in the US. The rating agencies are embedded in an assurance market as knowers; that is, as active searchers or creators of information on the quality of mortgage backed securities (MBS). This market was characterized by: (a) legal barriers to entry in the bond rating industry; (b) the legal tender category of the ratings provided by the oligopolistic bond raters; and (c) the even letter grades across financial assets with different risks. Hence, a 'Gresham law' type of argument is applied to explain the unraveling of the MBS. In short, these assets were not flawed but debauched. This explanation does not rest upon other more popular views such as rating shopping or the complicatedness of the assets.
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