Testimony In the congressional hearings into the pivotal role that the rating agencies played in the financial mess, was that the rating agencies were paid for triple-A ratings even when both the rating agencies and the sellers knew that the toxic CDOs weren't worth triple-A. TV news commentary during the hearings was that the rating agencies would likely avoid federal prosecution with the threat of downgrading US gov. ratings.
Can Open Source Ratings Break the Ratings Agency Oligopoly?
Friday, November 30, 2012
Yves here. One of the causes of the financial that should have been relatively easy to fix was the over-reliance on ratings agencies. They wield considerable power, suffer from poor incentives, in particular, that they can do terrible work yet are at no risk of being fired thanks to their oligopoly position, and are seldom exposed to liability (they have bizarrely been able to argue that their research is journalistic opinion, which gives them a First Amendment exemption). But they are not big enough moneybags to be influential donors, nor are they critical to the financial infrastructure.
