Turmoil in credit markets was mainly triggered by "a lack of transparency" in U.S. mortgage securities, reflecting the need for a new, different type of oversight, Nobel Prize-winning economist Edmund Phelps said.

The financial industry may react to the crisis by promoting new types of credit rating services that, unlike Moody's Investors Services and Standard and Poor's, focus less on the probability of default and more on providing investors with data about the securities they buy. The industry should oversee its own practices more closely, Phelps, 74, told a seminar on capital markets today in Campos de Jordao, Brazil.

"It seems to me that markets were not equipped with the adequate new instruments, the necessary institutions to administer these new credit markets," said Phelps, a professor at Columbia University in New York who won the Nobel Prize in economic sciences last year for his theories on the interplay between inflation expectations and unemployment.

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"There was a lack of transparency in the U.S. over all these new instruments," he said.

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