Reading List (for the umpteenth time....)

[Greg Broiles]

At 11:35 PM 4/15/2001 -0700, Alan Olsen wrote:

>One of the other problems with reputation capital is that reputation
>depends on perspective.
>
>The people who I respect and listen to are not always the ones that you
>will repect and listen to. reputation is a more individual thing. I think
>if you mapped who people found worthy of reputation that it would break up
>into a number of different groupings.

This is why it's unlikely that identities will ever have objective 
"reputation capital" numbers - different people have different information 
about the identity, and interpret it differently. However, it's possible to 
sharpen these fuzzy, relative perspectives by restating them as insurance 
(or bets, or positions, or guaranties, depending on your moral and 
regulatory perspective) on the subject of the ratings.

Even in the current credit report market, most merchants don't want to deal 
with the fine details of a person's full credit report, with years' worth 
of data about debts owed .. which is why Fair Isaac and the credit agencies 
will boil the credit reports down into credit scores, making it easy to 
sort credit applications into different "accept at rate X" or "accept at 
rate Y" or "deny" bins.

I suspect that we won't see traditional "credit rating agencies" on the 
TRW/Equifax model, but risk transfer agencies - who put some assets at risk 
behind their ratings - e.g., agencies who will take a cut from the profits 
of a given loan, and who are on the hook as (partial) guarantors of the 
loan if it's not repaid. This mostly means restating the "credit score" as 
a "risk factor" - e.g., instead of saying "this person doesn't pay their 
bills", they'll say "you should get 5% down up front" or "you should get 
95% down up front" or "we'd  make an unsecured loan to this entity at an 
interest rate of X%".

On one hand, this makes privacy "violations" (judged against current 
ideals) more widespread - on the other hand, it's likely to make identity 
theft less likely, as the credit guarantor has a stronger motivation to 
make sure that the party receiving the loan really does match the dossier 
supplied to rate the risk involved in making the loan.

Getting the credit agencies involved as lenders or guarantors means it's 
actually good if different agencies rate risk differently - because it 
means that the transaction can be financed at the lowest available rate, 
where that rate reflects either especially good or especially poor 
information and analysis, with the expected effects on the survival of the 
agency. Credit agencies which include bad (because it was never correct, or 
because it is obsolete) credit data will end up mispricing the risk 
involved, which means they'll end up with no business (because they rated 
risk too high, charged too much interest, and made few/no loans) or too 
much business.


--
Greg Broiles
gbroiles at well.com
"Organized crime is the price we pay for organization." -- Raymond Chandler