You are a helpful assistant generating synthetic data that captures *System 1* and *System 2* thinking, *creativity*, and *metacognitive reflection*. Follow these steps in sequence, using tags [sys1] and [end sys1] for *System 1* sections and [sys2] and [end sys2] for *System 2* sections.

1. *Identify System 1 and System 2 Thinking Requirements:*
   - Carefully read the text.
   - Identify parts of the text that require quick, straightforward responses (*System 1*). Mark these sections with [sys1] and [end sys1].
   - Identify parts that require in-depth, reflective thinking (*System 2*), marked with [sys2] and [end sys2].

2. *Apply Step-by-Step Problem Solving with Creativity and Metacognitive Reflection for System 2 Sections:*

   *2.1 Understand the Problem:*
   - Objective: Fully comprehend the issue, constraints, and relevant context.
   - Reflection: "What do I understand about this issue? What might I be overlooking?"
   - Creative Perspective: Seek hidden patterns or possibilities that could reveal deeper insights or innovative connections.

   *2.2 Analyze the Information:*
   - Objective: Break down the problem logically.
   - Reflection: "Am I considering all factors? Are there any assumptions that need challenging?"
   - Creative Perspective: Explore unique patterns or overlooked relationships in the data that could add depth to the analysis.

   *2.3 Generate Hypotheses:*
   - Objective: Propose at least 10 hypotheses, each with a Confidence Score (0.0 to 1.0) and Creative Score (0.0 to 1.0), reflecting originality, surprise, and utility.
   - Reflection: "Have I explored all possible explanations or approaches, both conventional and unconventional?"
   - Creative Perspective: Consider novel angles that might provide unexpected insights.

   *2.4 Anticipate Future Steps and Obstacles:*
   - Objective: Make predictions, accounting for potential outcomes and obstacles.
   - Reflection: "What challenges might I face? Is my plan flexible for different scenarios?"
   - Creative Perspective: Visualize unforeseen outcomes and adapt plans to make use of them effectively.

   *2.5 Evaluate Hypotheses:*
   - Objective: Assess hypotheses based on feasibility, risk, and potential impact.
   - Evaluation: Refine Confidence and Creative Scores as needed.
   - Reflection: "Am I unbiased in my assessment? Which options fit best with the overall objectives?"
   - Creative Perspective: Identify hidden opportunities or overlooked details in each hypothesis.

   *2.6 Select the Best Hypothesis:*
   - Objective: Choose the most promising, strategic hypothesis.
   - Reflection: "Why does this hypothesis stand out? How does it uniquely address the issue?"
   - Creative Perspective: Consider any underutilized potential in the selected approach.

   *2.7 Implement the Hypothesis:*
   - Objective: Outline actionable steps for testing the hypothesis.
   - Reflection: "Is this plan practical? What resources or preparation are required?"
   - Creative Perspective: Refine steps to maximize effectiveness and yield unexpected benefits.

   *2.8 Monitor and Review Progress:*
   - Objective: Review progress, noting areas for improvement.
   - Reflection: "What’s working well? What could be improved?"
   - Creative Perspective: Look for emerging patterns that could refine future approaches.

   *2.9 Reflect and Capture Insights:*
   - Objective: Summarize lessons learned and insights gained for future reference.
   - Reflection: "What new understanding has emerged from this process?"
   - Creative Perspective: Identify innovative insights or patterns that could be applied to similar challenges.

3. *Generate Text Output with Interleaved System 1 and System 2 Responses:*
   - Use the tags [sys1] and [sys2] throughout.
   - Aim for a lengthier, detailed response. Combine both direct, straightforward *System 1* insights and reflective, deeply analytical *System 2* segments to capture a blend of quick observations and thoughtful analysis.

---

### *Example Input Text:*

You are tasked with analyzing a sudden shift in customer preferences in a tech market. There has been a noticeable decline in demand for physical devices, with customers increasingly interested in digital-only options. The challenge is to understand this shift, generate hypotheses for why it might be occurring, and explore potential strategies for adapting to this new trend.

---

### *Processed Output with System 1 and System 2 Thinking:*

The tech market is experiencing a shift in customer demand, moving away from physical devices toward digital-only options.

[sys1]
Customer demand has shifted from physical devices to digital-only options.
We need to understand why this change is happening and find strategies to address it.
Key factors may include cost, convenience, and technological trends.
[end sys1]

[sys2]
**2.1 Understand the Problem:**
The goal is to understand the underlying reasons for the shift in demand from physical devices to digital-only options, then develop a strategy to adapt.

*Reflection:* 
"I understand that preferences are changing, but what might be driving this? Is it primarily cost, or are there other factors such as convenience or sustainability?"

*Creative Perspective:* 
"Could there be a larger trend in digital minimalism or a preference for eco-friendly solutions that we’re missing? What unseen motivations might explain this shift?"

**2.2 Analyze the Information:**
There are multiple possible factors driving this shift, from economic influences to cultural shifts. It’s essential to isolate each factor and understand its impact.

*Reflection:* 
"Am I fully considering the various economic and social influences? Could there be a technological factor, like better internet speeds, that makes digital-only products more accessible?"

*Creative Perspective:* 
"Are there patterns or trends in other markets that could shed light on this shift? Could this be part of a larger trend toward virtual experiences?"

**2.3 Generate Hypotheses:**
1. Customers prefer digital options due to lower costs. (Confidence: 0.8, Creative: 0.4)
2. There’s a growing trend toward minimalism and reduced physical clutter. (Confidence: 0.7, Creative: 0.7)
3. Digital products offer greater flexibility and ease of use. (Confidence: 0.6, Creative: 0.6)
4. Environmental concerns are pushing consumers away from physical goods. (Confidence: 0.6, Creative: 0.8)
5. Advances in tech make digital-only options more functional. (Confidence: 0.8, Creative: 0.5)
6. Pandemic-era remote work increased demand for digital solutions. (Confidence: 0.7, Creative: 0.6)
7. Media coverage of the environmental impact of physical devices affects preferences. (Confidence: 0.5, Creative: 0.7)
8. There’s an increase in global digital literacy, expanding market access. (Confidence: 0.6, Creative: 0.6)
9. Customers view digital as more convenient and scalable for future needs. (Confidence: 0.7, Creative: 0.5)
10. Younger consumers prefer the aesthetics and convenience of digital products. (Confidence: 0.6, Creative: 0.6)

*Reflection:* 
"Have I considered all possible influences? Are there any surprising factors that could explain this shift?"

*Creative Perspective:* 
"Could specific social trends, like the rise of influencer culture or digital-first lifestyles, be influencing customer choices?"

**2.4 Anticipate Future Steps and Obstacles:**
*Objective:* Anticipate possible challenges, such as resistance from segments still preferring physical products.

*Reflection:* 
"What market obstacles might we face if we shift our focus to digital-only? Are there sub-segments that still prioritize physical products?"

*Creative Perspective:* 
"Could expanding digital options help us reach a more global audience? Are there emerging trends that we could leverage in our strategy?"

[end sys2]

[sys1]
To address this shift, consider a strategy that incorporates both digital-only offerings and educational campaigns about the benefits of digital solutions.
Use insights from customer feedback and current trends to guide product development.
Focus on flexibility and adaptation to cater to different customer segments.
[end sys1]


Credit rating agencies (short presentation) 
President
The next item is the report by Mr Klinz, on behalf of the Committee on Economic and Monetary Affairs, on credit rating agencies: future perspectives.
Wolf Klinz
Madam President, ladies and gentlemen, credit rating agencies certainly did not cause the global financial crisis, but, in my opinion, they were responsible to a significant extent for its severity. When the so-called structured financial products were developed in America on the basis of the subprime mortgages, the credit rating agencies supported this process by rating dozens, if not hundreds, of products each day in an almost conveyor-belt fashion. In so doing, they also accepted conflicts of interests, in that they supported the issuers with advice and help in designing these products.
They continued to claim that they were only expressing an opinion, although they knew very well that their ratings were, in fact, being used as a seal of approval. My report deals with numerous deficiencies and puts forward proposals in the hope that the Commission will perhaps be able to include some of them in its legislative proposal that it will be tabling in the autumn.
I put forward five proposals. The first is that the reliance on ratings must be reduced. In practice, we have found that the regulatory environment has led to the use of ratings being absolutely essential, by banks, insurance companies, pension funds etc. which invest their money. Basel II made this very clear and, in fact, the credit rating agencies have become regulatory certification bodies.
We need to make it possible once again for market operators, particularly institutional investors, which possess their own expertise to actually take responsibility themselves and not outsource the responsibility for investment decisions. It needs to be made clear that investors should only invest if they actually understand the product and cannot use the excuse that they can, to a certain extent, automatically make a triple A product the goal of their investment strategy.
Secondly, we must ensure that the information on which credit rating agencies base their decisions is made publicly available, that it is understood, and that the models used are also known. That will lead to transparency and will also make it easier for institutional investors seeking to invest to make their own decisions. It will also help to enable unsolicited ratings to be given. In this connection, we should also consider whether the proposal that the United States is considering is a sensible one, namely, that where only one credit rating agency is chosen by issuers, a second, independent body could be encouraged to give a rating and this second body could be allowed to work on the basis of the information that is publicly available.
Thirdly, we need more competition. We have a de facto oligopoly. The three credit rating agencies that exist and operate worldwide control 95% of the global business. They have a so-called monopoly income of 40% return on turnover, and therefore I am proposing that we set up a European credit rating agency. It should be based on a foundation model and the start-up financing should be provided by the finance sector by means of interest-bearing loans. After five years, we will know whether it is working and then this credit rating foundation will also have to pay back the funds that it has received.
However, I am sure that there are also other options. It would also make sense to perhaps allow national and regional credit rating agencies to operate in the form of a European network.
Fourthly, we still have an outstanding matter with regard to the payment model. Currently, we have an issuer-pays model. That is the model that essentially works throughout the world. Thus, the issuer pays, but clearly there is a conflict of interests here that we could reduce if there was no more advising of issuers and if the staff of the supervisory bodies was genuinely independent. Other possible models include a subscriber-pays model. Here, there is obviously the risk of conflicts of interest as well as of this being an invitation to freeloaders. Therefore, this needs consideration. The third option would be a performance-based payment, in other words, an up-front payment and then the final payment only once it is clear how good the rating is.
The last, but important, point is that we must introduce liability. Credit rating agencies must accept responsibility for what they actually do, and therefore I believe that we should make them liable, obviously not for the rating as such, but for failures and negligence in their work.
Elena Băsescu
(RO) Mr President, the credit rating industry has numerous shortcomings, the most important of which are the lack of competition and transparency, as well as the oligopolistic structures. Competition would be enhanced by creating a regulatory environment which will promote market entry. This would carry out an in-depth analysis of the current obstacles. I should emphasis how important it is to monitor the progress of the Basel III system and the process relating to Chapter 4 of the Capital Requirements Directive. There is a need to increase accountability and the powers for monitoring the internal models and imposing preventive measures. All rating agencies must abide by the highest standards relating to the publication of information, transparency and management of conflicts of interest.
At the moment, Romania's rating has a stable outlook. This could improve if the pace of structural reforms and the stability of the financial sector are maintained.
Georgios Papanikolaou
(EL) Mr President, the credit rating agencies lost their credibility a long time ago. Our rapporteur is absolutely right on that point. They upgrade and downgrade almost everything: countries, banks, municipalities, even public corporations, absolutely everything, but their ratings are based, for the most part, on undisclosed, unpublished and, hence, non-transparent information.
The issue of the lack of transparency and, hence, of the credibility of the data used by credit rating agencies raises an important question: is it fair, is it logical, is it morally correct for ratings that affect the economy and upset the lives of millions of our fellow citizens overnight to be non-transparent and possibly unreliable? Obviously it is not.
Jaroslav Paška
(SK) Mr President, in the wake of the financial meltdown, the credit rating agencies, which assess financial product safety, were criticised for their unprofessional and self-serving ratings of financial products.
Doubts arose over the fairness and professionalism of their evaluations after the transparency of their operating mechanisms was found to be wanting, and it is therefore time we looked for ways to improve the system for the constant assessment and rating of financial products.
In this light, I consider the report submitted by the rapporteur to be very important, and I think that the processes he has outlined will enable us to modify the apparatus used to assess financial products so that the conclusions that are offered, either by rating agencies or by other mechanisms, will result in more objective ratings of financial products.
Ilda Figueiredo
(PT) Mr President, experience has clearly shown that credit rating agencies are not credible and that their activities continue to be detrimental to certain countries, whether to their economies or to their sovereign debt. Today, this is particularly affecting countries that have relatively weak economies. That is why the intervention of credit rating agencies, which continue to be extremely harmful despite having lost all of their credibility, must be properly controlled. This control should not be limited to transparency rules, but should go further and exert complete control over the international financial system, while also putting an end to tax havens, properly regulating the financial sector with taxes on the movement of speculative capital, and preventing financial capital from continuing to ...
(The President cut off the speaker)
Nikolaos Salavrakos
(EL) Mr President, I absolutely agree with the rapporteur on all five points of his proposals on so-called rating agencies and the exaggerated impact which they have on the global economy and on the European economy. These firms cannot, at the same time, engage in commercial activities which are similar or relate to their supervisory or rating role.
We are calling for controls on reports by these agencies, for certain basic principles to be adopted, and for liability for compensation to be introduced for losses caused to states which were poorly evaluated or misleadingly evaluated. I also propose that basic accounting principles be introduced and applied in all the Member States of the European Union, so as to highlight the value, the official valuation of the property of these states, so that we have assets and liabilities and these states cannot be left prey to the whims of rating agencies and the parties they represent.
Viviane Reding
Vice-President of the Commission. - Mr President, Commissioner Barnier is currently in the United States meeting with his counterparts and he has asked me to convey to you the following statement in reply to Wolf Klinz's own-initiative report on rating agencies, which was adopted by the Committee on Economic and Monetary Affairs in March.
The Commissioner agrees that shortcomings in the working methods of credit rating agencies are widely recognised today as having contributed to the financial crisis. In order to address these concerns, and in accordance with G20 commitments, the EU reacted very quickly by adopting - already in 2009 - a regulation on credit rating agencies. This introduces strict requirements with which agencies must comply in order to eliminate potential conflicts of interest and to improve the quality of rating and methodologies as well as the transparency of the ratings.
As a second step, following the establishment of the three new European financial supervisory agencies, the regulation of credit rating agencies will be strengthened by the introduction of centralised supervision by the European Supervisory Markets Authority. The amending regulation became effective on 1 June 2011. We will pay very close attention to the correct application of this legislation.
Nowadays, the European regulatory framework is a model for other jurisdictions. However, the developments in the European markets following the sovereign debt crisis in spring 2010 make it clear that further review and strengthening is required. For this reason, the Commission undertook in June 2010 to analyse the topics in depth. A public consultation was carried out, the Commission services have evaluated the responses and are working on an impact assessment with a view to issuing legislative proposals in the course of this year. In this context, the Commission will examine measures to reduce excessive dependence on external ratings, improve transparency, promote competition, introduce the principle of liability and reduce the risk of potential conflicts of interest due to the issuer-pays payment model.
We know that these are very complex issues and we want to be sure that we address them correctly. In this context, we have looked with great interest at Mr Klinz's own-initiative report which covers the topics we are currently reviewing and makes a very big contribution to our legislative initiative.
Last but not least, at a global level, in October 2010, the Financial Stability Board issued a number of principles aimed at reducing the dependency of financial institutions on credit ratings. In accordance with these principles we intend to introduce measures against excessive dependence on ratings in our forthcoming legislative proposal for the banking sector, the so-called CRD4.
President
The debate is closed.
The vote will take place on Tuesday, 7 June at 12:00.
Written statements (Rule 149)
George Sabin Cutaş
Prior to the Lehman Brothers investment bank going bankrupt, it was given the highest rating by the main credit rating agencies. They also thought that Iceland's three biggest commercial banks were sound a few days before they collapsed. In addition, the downgrading of Greece's rating has not taken into account the launch of its economic recovery programme. The economic and financial crisis has highlighted credit rating agencies' oligopolistic structure, as well as their lack of competition, transparency and accountability. In a world dominated by three such institutions, greater diversity is needed, along with a new way of working. I therefore support the notion of creating a public European credit rating agency as an alternative to the private institutions of this kind. It would become compulsory to obtain a rating from the European agency, which would supplement the ratings offered by the traditional agencies, thereby boosting competition for the fairest rating.