7 Nov 2012

Rating Agency reform- new idea but not enough

John Carney (CNBC) makes a new suggestion when he writes that rating agencies should not receive non-public information. While this may be a useful step in the right direction he does not explain why the shift to a different payment model would not be appropriate. The current system of having the issuer pay for the ratings is not only fraught with conflicts of interest, it is also expensive as usually more than one agency has to be hired thus duplicating effort and expense - and in many cases a third agency gets its pound of flesh. Agencies might be less profitable but this reduction in cost is only appropriate in the current climate of austerity. If the Value Line Investment Survey can achieve a long history of excellent service to the investment community there is no reason why there should not be enough demand for rating services that have to be paid by the investor. Does the financial community really want for the dead hand of bureaucrats in Brussels and elsewhere to get involved by dragging its feet and hoping that the current state of affairs can continue?

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