"Junk bonds prove there's nothing magical in a Aaa bond rating"
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The barb lands because it punctures finance’s favorite illusion: that a letter grade can alchemize risk into safety. Miller, a Nobel-winning economist who spent a career arguing that markets price fundamentals more than storytelling, uses “magical” with surgical disdain. Credit ratings, especially the pristine Aaa, trade on a quasi-sacred aura: institutional approval, prudence, the promise that grown-ups are in charge. Miller’s point is that this aura is manufactured.
The mention of junk bonds is doing double duty. In the 1980s, “junk” wasn’t just a yield category; it was a moral category, a cultural panic. Michael Milken-era high-yield finance was framed as predatory, reckless, borderline illegitimate. By saying junk bonds “prove” the absence of magic, Miller flips the moral script: the market’s ability to fund companies through high-yield debt shows that investors can evaluate risk without priestly certification. Risk exists on a spectrum, and price (yield) is the honest translator.
Subtext: ratings are not neutral science; they’re institutions with incentives, reputational politics, and herding behavior. Aaa can be less a measurement than a coordinating signal that lets managers, regulators, and pension boards outsource judgment. Miller is warning against that outsourcing. Trusting the label over the underlying cash flows isn’t conservatism; it’s credentialism.
In retrospect, the line reads like a premonition of the structured-finance era, when “Aaa” became a product feature. Miller’s cynicism is aimed at the marketplace of authority, not the marketplace itself.
The mention of junk bonds is doing double duty. In the 1980s, “junk” wasn’t just a yield category; it was a moral category, a cultural panic. Michael Milken-era high-yield finance was framed as predatory, reckless, borderline illegitimate. By saying junk bonds “prove” the absence of magic, Miller flips the moral script: the market’s ability to fund companies through high-yield debt shows that investors can evaluate risk without priestly certification. Risk exists on a spectrum, and price (yield) is the honest translator.
Subtext: ratings are not neutral science; they’re institutions with incentives, reputational politics, and herding behavior. Aaa can be less a measurement than a coordinating signal that lets managers, regulators, and pension boards outsource judgment. Miller is warning against that outsourcing. Trusting the label over the underlying cash flows isn’t conservatism; it’s credentialism.
In retrospect, the line reads like a premonition of the structured-finance era, when “Aaa” became a product feature. Miller’s cynicism is aimed at the marketplace of authority, not the marketplace itself.
Quote Details
| Topic | Investment |
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