“But nothing in the laws tackles the critic-for-hire problem or threatens the 85 percent market share that Moody’s, S.& P. and Fitch”
Click Here To Read: Debt Raters Avoid Overhaul After Crisis
Introduction (Via NYT)
When the financial crisis began, few players on Wall Street looked more ripe for reform than the Big Three credit rating agencies.
It wasn’t just that Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, played a crucial role in the epochal housing market collapse, affixing their most laudatory grades to billions of dollars worth of bonds that went bad in the subprime crisis.
It was the near universal agreement that potential conflicts were embedded in the ratings model. For years, banks and other issuers have paid rating agencies to appraise securities — a bit like a restaurant paying a critic to review its food, and only if the verdict is highly favorable.
So as Washington rewrites the rules of Wall Street, how is the overhaul of the Big Three coming? It isn’t, finance experts say.
Additional Excerpts (Via NYT)
Nor is anyone on Capitol Hill suggesting a rewrite of all those rules that put rating agencies in the middle of so much Wall Street action. Instead of cajoling the Big Three into producing more accurate ratings, why not take away the special status of those ratings and make them less important?
Academics and former rating agency employees who have been warning lawmakers about the Big Three for years say Congress is tiptoeing when it ought to be charging ahead. But for now, and for the foreseeable future, the market for ratings is sure to look uncannily similar to the one that helped usher in the crisis: three rivals, all of them paid by issuers, bestriding the market.
It is a picture of the future so rosy and so rife with the potential for profits that some investors see a buy sign.
“I’ve had a few hedge funds call and ask me what I think of the rating agencies as investments,” said Frank Partnoy, a professor of law and finance at the University of San Diego school of law, who has written extensively on the rating agencies. “If the dysfunctional regulatory structure stays put, the rating agencies soon will be back to business as usual, which will mean a continuing monopoly and sky-high operating margins approaching 50 percent.”
Go to the feed source of this article
Go to publisher’s website
This article appeared on the website mentioned above and the author and/or the publisher are to be credited explicitly for the content. Alphaverse.com is not affiliated in any professional way with the publisher of this article and uses its content purely for educational purposes.
